51652 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

9OPRA also proposes to delete current paragraph 

19(b) (modifications relating Electronic Subscriber 

Agreement) and paragraph 19(c). 

10 In approving this proposed OPRA Plan 

Amendment, the Commission has considered its 

impact on efficiency, competition, and capital 

formation. 15 U.S.C. 78c(f). 

11 15 U.S.C. 78k–1. 

12 17 CFR 242.608. 

13 15 U.S.C. 78k–1. 

14 17 CFR 242.608. 

15 15 U.S.C. 78k–1. 

16 17 CFR 242.608. 

17 17 CFR 200.30–3(a)(29). 

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

2 17 CFR 240.19b–4. 

3The term ‘‘Restructuring Transaction’’ is defined 

in proposed CBOE Rule 1.1(hhh) as ‘‘the 

restructuring of the Exchange from a non-stock 

corporation to a stock corporation and wholly 

owned subsidiary of CBOE Holdings, Inc.’’

4The substance of the proposed rule change and 

its filing under Section 19(b)(2) of the Exchange Act 

(15 U.S.C. 78s(b)(2)), and Rule 19b–4 thereunder 

(CFR 240.19b–4), have been approved by the Board 

of Directors of the Exchange. The Exchange must 

obtain, but has not yet obtained, formal approval 

from the Board of Directors of the Exchange, as well 

as approval from the membership, for the changes 

set forth in this proposed rule change. Once it has 

obtained those approvals, the Exchange plans to file 

a technical amendment to this proposed rule 

change to reflect those approvals. Once those 

approvals are obtained, no further action by the 

Exchange in connection with this proposed rule 

change will be required. 

Vendor and OPRA until the effective 

date of the Vendor’s termination.9

D. Section 21: ‘‘Assignment’’ Provision 

Section 21 of the Vendor Agreement 

currently states that the Vendor may not 

assign the Vendor Agreement without 

the consent of OPRA ‘‘except to a 

successor corporation upon merger or 

consolidation of Vendor, or to a 

corporation acquiring all or 

substantially all of the property, assets 

and business of Vendor.’’ OPRA is 

proposing to modify that language to 

accommodate other business entities in 

addition to corporations. 

III. Discussion 

After careful review, the Commission 

finds that the proposed OPRA Plan 

amendment, as modified by 

Amendment No. 1, is consistent with 

the requirements of the Act and the 

rules and regulations thereunder.10

Specifically, the Commission finds that 

the proposed OPRA Plan amendment is 

consistent with Section 11A of the 

Act 11 and Rule 608 thereunder 12 in that 

it is appropriate in the public interest, 

for the protection of investors and the 

maintenance of fair and orderly markets, 

and to remove impediments to, and 

perfect the mechanism of, a national 

market system. 

The Commission notes that OPRA’s 

proposed changes to the definition of 

the term ‘‘Nonprofessional’’ are 

designed to add clarity to the definition 

and better align the definition language 

with Vendors’ and Subscribers’ current 

understanding of the term. In addition, 

the Commission notes that OPRA’s 

proposed changes to Sections 14, 19, 

and 21 are designed to add clarity and 

specificity to these provisions. The 

Commission believes that the proposed 

OPRA Plan amendment should help to 

assure the availability of information 

with respect to quotations and 

transactions in listed options and would 

thereby further one of the principal 

objectives for a national market system 

set forth in Section 11A(a)(1)(C)(iii) of 

the Act. Therefore, the Commission 

believes that OPRA’s proposal is 

consistent with Section 11A of the 

Act 13 and Rule 608 thereunder.14

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 11A of the Act,15 and Rule 608 

thereunder,16 that the proposed OPRA 

Plan amendment (SR–OPRA–2008–02), 

as modified by Amendment No. 1, be, 

and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–20469 Filed 9–3–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58425; File No. SR–CBOE–

2008–88] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing of a 

Proposed Rule Change Relating to the 

Demutualization of Chicago Board 

Options Exchange, Incorporated 

August 26, 2008. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’ or ‘‘Exchange Act’’),1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on August 21, 2008, the 

Chicago Board Options Exchange, 

Incorporated (‘‘CBOE’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (the ‘‘Commission’’ or 

‘‘SEC’’) the proposed rule change as 

described in Items I, II, and III below, 

which Items have been prepared by 

CBOE. 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 

CBOE is filing this proposed rule 

change in connection with its plan to 

restructure from a Delaware non-stock 

corporation to a Delaware stock 

corporation that will be a wholly owned 

subsidiary of CBOE Holdings, Inc. 

(‘‘CBOE Holdings’’), a holding company 

organized as a Delaware stock 

corporation. As part of this 

Restructuring Transaction, a Certificate 

of Incorporation and Bylaws will be 

adopted for CBOE Holdings.3 In 

addition, the Exchange’s Certificate of 

Incorporation and Constitution will be 

replaced with a new Certificate of 

Incorporation and Bylaws as a result of 

the Restructuring Transaction. Finally, 

the Exchange’s Rules will be amended 

to address, among other things, trading 

access to the Exchange after the 

Restructuring Transaction.4

The text of the proposed Certificate of 

Incorporation of CBOE Holdings, the 

proposed Bylaws of CBOE Holdings, the 

proposed Certificate of Incorporation of 

the Exchange, the proposed Bylaws of 

the Exchange, the proposed 

amendments to the Rules of the 

Exchange, the proposed Voting 

Agreement between CBOE Holdings and 

the Exchange, and the proposed 

deletion of the Constitution of the 

Exchange is available on CBOE’s Web 

site (http://www.cboe.org/Legal), at 

CBOE’s Office of the Secretary, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

CBOE 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. CBOE 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 the 

Statutory Basis for, the Proposed Rule 

Change 

Purpose 

(1) The Restructuring Transaction 

CBOE is filing this proposed rule 

change in connection with its plan to 

restructure from a Delaware non-stock 

corporation owned by its members to a 


sroberts on PROD1PC77 with NOTICES
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 51653 

5CBOE Holdings and CBOE Merger Sub have 

already been created. 

6These entities engage in the following activities: 

CBOE Futures Exchange, LLC operates an electronic 

futures exchange; Chicago Options Exchange 

Building Corporation owns the building in which 

CBOE operates; CBOE, LLC holds a 24.01% interest 

in OneChicago, LLC, a security futures exchange; 

CBOE II, LLC recently sold its interest in 

HedgeStreet, Inc., a derivatives market regulated by 

the Commodity Futures Trading Commission; 

DerivaTech Corporation owns certain educational 

software; Market Data Express, LLC distributes 

various types of market data; and The Options 

Exchange, Incorporated currently has no assets or 

activities. CBOE is in the process of establishing 

CBOE Execution Services, LLC as a broker-dealer. 

CBOE Execution Services, LLC will perform various 

functions in that capacity and will be a first-tier, 

wholly-owned subsidiary of CBOE Holdings 

immediately following the Merger. 

7The remaining 50% interest in CBSX currently 

is owned by five registered broker-dealers. 

8As of the effective time of the Restructuring 

Transaction, CBOE Holdings will be authorized to 

issue (i) a certain number of shares of unrestricted 

common stock, $0.01 par value per share, (ii) a 

certain number of shares of Class A common stock, 

$0.01 par value per share, initially divided into 

three series of restricted Class A common stock, 

designated Series A–1, A–2 and A–3, (iii) a certain 

number of shares of Class B non-voting common 

stock, $0.01 par value per share, initially divided 

into three series of Class B non-voting common 

stock, designated Series B–1, B–2 and B–3, and (iv) 

up to 20,000,000 shares of preferred stock, $0.01 par 

value per share. The unrestricted common stock 

and the Class A common stock will have the same 

rights and privileges, except the Class A common 

stock will be subject to certain transfer restrictions. 

The unrestricted common stock will be freely 

transferable. The three series of Class A common 

stock will be identical, except that the transfer 

restrictions associated with each series will be of a 

different duration. The three series of Class B nonvoting common stock will be identical, and will 

have no voting privileges or rights except in certain 

limited circumstances. The three series of Class B 

non-voting common stock will convert into Class A 

common stock upon the public offering of CBOE 

Holdings Common Stock (defined for purposes of 

this rule filing as the unrestricted common stock, 

the Class A common stock and the Class B nonvoting common stock). The Class B non-voting 

common stock will be issued as part of a settlement 

of certain litigation, which is discussed below. 

CBOE Holdings will have the ability to issue 

preferred stock and unrestricted common stock, 

including in connection with a public offering of 

shares of stock to investors who were not members 

of CBOE prior to the Restructuring Transaction and 

are not holders of Trading Permits in CBOE 

following the Restructuring Transaction. CBOE 

Holdings has no current intention to issue any 

shares of its preferred stock. 

Delaware stock corporation that will be 

a wholly owned subsidiary of CBOE 

Holdings, a holding company organized 

as a Delaware stock corporation. After 

the Restructuring Transaction, the 

owners of membership interests will 

become stockholders of CBOE Holdings 

through the conversion of their 

memberships into shares of common 

stock of CBOE Holdings. CBOE 

Holdings will hold all of the 

outstanding common stock of CBOE. 

CBOE will continue to function as a 

self-regulatory organization (‘‘SRO’’) 

and to operate its exchange business 

and facilities. 

The Restructuring Transaction will be 

completed through the following steps: 

• The creation of CBOE Holdings as 

a first-tier, Delaware stock, for-profit 

subsidiary corporation of CBOE; and the 

creation of CBOE Merger Sub, 

Incorporated as a second-tier, Delaware 

stock, for-profit subsidiary corporation 

of CBOE (CBOE Merger Sub will be a 

first-tier subsidiary of CBOE Holdings).5

• Pursuant to the Agreement and Plan 

of Merger to be entered into in the 

future, CBOE Merger Sub, Incorporated 

will merge with and into CBOE, with 

CBOE surviving the merger as a 

Delaware stock, for-profit corporation, 

which is referred to as the ‘‘Merger.’’

• Upon the effectiveness of the 

Merger, the outstanding stock of CBOE 

Merger Sub, Incorporated will be 

converted into common stock of CBOE, 

the memberships in CBOE existing on 

the date of the Restructuring 

Transaction will be converted into Class 

A common stock of CBOE Holdings 

(described below) and the CBOE 

Holdings common stock held by CBOE 

will be cancelled. As a result, CBOE 

Holdings will become the sole 

stockholder of CBOE and will be 

entitled to the exclusive right to receive 

all dividends and distributions, 

including proceeds upon liquidation, 

from CBOE and all associated voting 

rights. 

• Immediately following the Merger, 

CBOE will dividend up to CBOE 

Holdings all of the shares or interests 

CBOE owns in its subsidiaries (CBOE 

Futures Exchange, LLC, Chicago 

Options Exchange Building Corporation, 

CBOE, LLC, CBOE II, LLC, DerivaTech 

Corporation, Market Data Express, LLC 

and The Options Exchange, 

Incorporated) other than CBOE Stock 

Exchange, LLC, making them first-tier, 

wholly-owned subsidiaries of CBOE 

Holdings.6 CBOE Stock Exchange, LLC 

(‘‘CBSX’’) will remain a facility of CBOE 

in which CBOE holds a 50% interest.7

CBSX is an equity trading facility of 

CBOE. 

As part of the Restructuring 

Transaction, each membership in CBOE 

existing on the date of the Restructuring 

Transaction will be converted into a 

certain number of shares of Class A 

common stock of CBOE Holdings, 

divided by thirds into shares of Series 

A–1 common stock, Series A–2 common 

stock and Series A–3 common stock.8

As a result, the owners of CBOE 

memberships outstanding immediately 

prior to the Restructuring Transaction 

will own shares of Class A common 

stock of CBOE Holdings immediately 

following the Restructuring Transaction. 

The Class A common stock of CBOE 

Holdings will represent an equity 

ownership interest in CBOE Holdings 

and will have traditional features of 

common stock, including equal per 

share dividend, voting and liquidation 

rights. This stock, however, will not 

provide its holders with physical or 

electronic access to CBOE and its 

trading facilities. Following the 

Restructuring Transaction, physical and 

electronic access to CBOE and its 

trading facilities will be available to 

individuals and organizations that have 

obtained a Trading Permit from CBOE. 

Trading Permits are described in more 

detail below. 

(2) Reasons for the Restructuring 

Transaction 

CBOE believes that changing its focus 

to that of a for-profit business, along 

with modifying its corporate and 

governance structures to be more like 

those of other for-profit businesses, will 

provide CBOE with greater flexibility to 

respond to the demands of a rapidly 

changing business environment. In 

addition, by being structured as a stock, 

for-profit corporation, CBOE will be able 

to pursue strategic opportunities to 

engage in business combinations and 

joint ventures with other organizations 

and to access capital markets in ways 

that are not available to non-stock, 

membership corporations. CBOE 

believes that the Restructuring 

Transaction will move it one step closer 

to achieving its key objectives of 

providing its owners a more liquid 

investment and creating a framework for 

a possible future public offering of 

CBOE Holdings Common Stock. 

CBOE also believes, among other 

things, that the restructuring of the 

Exchange will enable it to enhance its 

competitiveness with other options 

exchanges while preserving its ability to 

provide trading benefits and 

opportunities to persons with trading 

access to the Exchange. 

(3) Paragraph (b) of Article Fifth of the 

CBOE Certificate of Incorporation and 

the Settlement of Litigation 

In connection with the Merger, the 

Exchange’s Certificate of Incorporation 

and Constitution will be replaced by a 

new Certificate of Incorporation and 

Bylaws. While the content of the 

Exchange’s new Certificate of 

Incorporation and Bylaws will be 

similar to the content of the Exchange’s 

old Certificate of Incorporation and 

Constitution, the new Certificate of 

Incorporation will not contain, among 

other things, paragraph (b) of Article 

Fifth of the CBOE Certificate of 


sroberts on PROD1PC77 with NOTICES
51654 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

9As a result of this change, the Exchange is 

proposing to delete CBOE Rule 3.16, which 

addresses certain issues related to Article Fifth(b). 

10On January 15, 2008, the Securities and 

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

approved an interpretation of Article Fifth(b) 

(‘‘Article Fifth(b) Interpretation’’) that addressed the 

impact of the acquisition of CBOT by Chicago 

Mercantile Exchange Holdings Inc. (‘‘CME/CBOT 

Transaction’’) on the eligibility of persons to 

become or remain members of CBOE (‘‘exerciser 

members’’) pursuant to Article Fifth(b) (the right 

provided under this provision is sometimes referred 

to as the ‘‘exercise right’’). See Securities Exchange 

Act Release No. 57159 (Jan. 15, 2008), 73 FR 3769 

(Jan. 22, 2008) (order approving File No. SR–CBOE–

2006–106). Under the Article Fifth(b) Interpretation, 

the consummation of the CME/CBOT Transaction 

resulted in no person any longer qualifying as a 

member of the CBOT within the meaning of Article 

Fifth(b) and therefore resulted in the elimination of 

any person’s eligibility to qualify thereafter to 

become or remain an exerciser member of the 

Exchange. 

11 In addition to the Delaware litigation, the 

Commission’s approval order of the Article Fifth(b) 

Interpretation has been appealed to the DC Circuit. 

12Among other things, the appeal of the 

Commission’s approval order of the Article Fifth(b) 

Interpretation to the DC Circuit would be 

withdrawn as part of the settlement. CBOE will 

keep Commission staff apprised regarding the status 

of the settlement and the legal proceedings related 

to the settlement. 

13 In the event of such a public offering, the Class 

A common stock will be subject to certain transfer 

restrictions as noted above. 

14 15 U.S.C. 78s. 

15While certain provisions of the Certificate of 

Incorporation and Bylaws for CBOE Holdings are 

not related to the operation of the Exchange, for so 

long as CBOE Holdings controls CBOE, before any 

amendment, alteration or repeal of any provision of 

the Certificate of Incorporation and Bylaws of CBOE 

Holdings becomes effective, such amendment, 

alteration or repeal will be submitted to the Board 

of Directors of CBOE, and if such amendment, 

alteration or repeal must be filed with or filed with 

and approved by the Commission, then such 

amendment, alteration or repeal will not become 

effective until filed with or filed with and approved 

by the Commission, as the case may be. See 

proposed Article Eleventh of the CBOE Holdings 

Certificate of Incorporation and proposed Article 

10.2 of the CBOE Holdings Bylaws. 

16The Exchange is not proposing any significant 

change to its existing operational and trading 

structure in connection with the demutualization. 

17See proposed Article Seventh(b) of the CBOE 

Holdings Certificate of Incorporation and proposed 

Article 3.2 of the CBOE Holdings Bylaws. 

18See proposed Article 3.2 of the CBOE Holdings 

Bylaws. 

19See proposed Article 3.3 of the CBOE Holdings 

Bylaws. At the time this rule filing was submitted 

to the Commission, the requirements to qualify as 

an ‘‘independent director’’ under the NYSE’s listing 

Incorporation (‘‘Article Fifth(b)’’).9

Article Fifth(b) provided the right for 

full members of The Board of Trade of 

the City of Chicago, Inc. (‘‘CBOT’’) to 

become members of CBOE without 

having to separately purchase or lease a 

membership.10

Article Fifth(b) contains a provision 

that provides that no amendment may 

be made to it without the prior approval 

of not less than 80% of (i) the regular 

members of the Exchange admitted 

pursuant to Article Fifth(b) and (ii) the 

regular members of the Exchange 

admitted other than pursuant to Article 

Fifth(b), each such category of members 

voting as a separate class. CBOE has 

received a legal opinion from its 

Delaware counsel that under Delaware 

law because the Restructuring 

Transaction is structured as a merger, 

this provision of Article Fifth(b) would 

not be triggered, and that the Merger 

and associated amendments to the 

Exchange’s Certificate of Incorporation 

and Constitution could be effected 

through a simple majority vote of the 

members. 

In addition, issues related to Article 

Fifth(b) are subject to litigation in 

Delaware state court and the U.S. Court 

of Appeals for the District of Columbia 

Circuit (‘‘DC Circuit’’).11 A settlement 

has been reached with respect to this 

litigation that remains subject to various 

approvals.12 As a result of the 

settlement, the trading access of persons 

who are Temporary Members under 

Interpretation and Policy .02 of CBOE 

Rule 3.19 will be preserved as further 

described below. In addition, the class 

members in the litigation will receive 

cash and Class B non-voting common 

stock that will convert into Class A 

common stock upon the public offering 

of CBOE Holdings Common Stock.13

(4) Request for Commission Approval 

Under Section 15.16 of the CBSX 

Operating Agreement 

Under the CBSX Operating 

Agreement, CBOE is defined as one of 

the ‘‘Owners’’ of CBSX. Section 15.16 of 

the CBSX Operating Agreement 

provides that in the event that a person 

acquires a 25% or greater interest in an 

Owner that owns a 20% or greater 

interest in CBSX, that person must 

execute an amendment to the Operating 

Agreement in which that person agrees 

to be a party to the Operating Agreement 

and to abide by all of the provisions of 

the Operating Agreement. Section 15.16 

also provides that Commission approval 

under Section 19 of the Exchange Act is 

required in connection with such an 

amendment to the Operating 

Agreement.14 Because CBOE owns a 

50% interest in CBSX, the establishment 

of CBOE Holdings as the sole 

shareholder of CBOE would trigger this 

Commission approval requirement. 

Consistent with this requirement in 

Section 15.16 of the CBSX Operating 

Agreement, CBOE is requesting as part 

of this proposed rule change that the 

Commission provide such approval. 

(5) Summary of the Proposed Rule 

Change 

Following the Restructuring 

Transaction, the Exchange’s new 

Certificate of Incorporation and Bylaws 

will be similar to the current Certificate 

of Incorporation and Constitution, 

except they will reflect CBOE’s new 

structure as a for-profit stock 

corporation wholly-owned by CBOE 

Holdings. In this regard, they will be 

modified to, among other things, 

streamline governance and incorporate 

provisions required by the SEC in the 

case of for-profit exchanges. The 

Exchange also proposes to adopt a 

Certificate of Incorporation and Bylaws 

for CBOE Holdings that will address, 

among other things, the operation of the 

Exchange as an SRO in this new 

structure.15 The Rules of the Exchange 

also will be amended to reflect the use 

of Trading Permits to access the 

Exchange and its trading facilities and 

to make certain conforming changes.16

These rule changes are discussed below. 

(A) CBOE Holdings 

As mentioned above, CBOE Holdings 

will be the parent company and sole 

shareholder of CBOE. The Certificate of 

Incorporation and the Bylaws of CBOE 

Holdings will govern the activities of 

CBOE Holdings. 

(i) CBOE Holdings Board of Directors 

After the Restructuring Transaction, 

the business and affairs of CBOE 

Holdings will be managed by or under 

the direction of its Board of Directors 

(‘‘CBOE Holdings Board’’). The CBOE 

Holdings Board will consist of between 

11 and 15 directors, and except with 

respect to the initial CBOE Holdings 

Board, will be fixed by the CBOE 

Holdings Board from time to time.17

After the Restructuring Transaction, the 

initial CBOE Holdings Board will have 

13 directors who will consist of the 

CBOE Holdings’ Chief Executive Officer 

and 12 other directors.18 That initial 

CBOE Holdings Board will be selected 

by the Board of Directors of the 

Exchange existing prior to the 

Restructuring Transaction (‘‘Prior CBOE 

Board’’) or a committee thereof, and the 

composition requirements for the CBOE 

Holdings Board will be satisfied in 

connection with the selection of 

directors for that initial CBOE Holdings 

Board. At all times no less than twothirds of the directors of CBOE Holdings 

will satisfy the independence 

requirements contained in the listing 

standards of the New York Stock 

Exchange (‘‘NYSE’’) and the 

independence requirements adopted by 

the CBOE Holdings Board, as may be 

modified and amended from time to 

time.19


sroberts on PROD1PC77 with NOTICES
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 51655 

standards were found in Sections 303A.01 and 

303A.02 of the NYSE’s Listed Company Manual. 

20See proposed Article 3.6 of the CBOE Holdings 

Bylaws. 

21See proposed Article 5.1 of the CBOE Holdings 

Bylaws. 

22See proposed Article 3.7 of the CBOE Holdings 

Bylaws. 

23See proposed Article 3.2 of the CBOE Holdings 

Bylaws. With regard to the initial CBOE Holdings 

Board, the initial term of the Class I directors will 

end with the first annual stockholders meeting to 

be held by CBOE Holdings following the 

Restructuring Transaction, and the initial term of 

the Class II directors will end with the second 

annual stockholders meeting following the 

Restructuring Transaction. The CBOE Holdings 

Board is authorized to assign members of the CBOE 

Holdings Board already in office to such classes at 

the time the classification becomes effective. 

24See proposed Article 2.11 of the CBOE 

Holdings Bylaws. Subject to certain conditions, 

stockholders also have the right under this 

provision to nominate persons for the CBOE 

Holdings Board. 

25See proposed Article 2.8 of the CBOE Holdings 

Bylaws. 

26See proposed Article 2.10 of the CBOE 

Holdings Bylaws. Except as otherwise provided by 

law or the Certificate of Incorporation or Bylaws of 

CBOE Holdings, the holders of a majority in voting 

power of the shares of the capital stock of CBOE 

Holdings issued and outstanding and entitled to 

vote at the meeting (after taking into account the 

effect of any reduction of the number of shares 

entitled to vote as a result of the voting limitations 

imposed by Article Sixth of the Certificate of 

Incorporation of CBOE Holdings, if any), present in 

person or represented by proxy, will constitute a 

quorum for the transaction of business. See 

proposed Article 2.6 of the CBOE Holdings Bylaws. 

The voting limitations in Article Sixth are 

discussed below. 

27See proposed Article 4.1 of the CBOE Holdings 

Bylaws. The CBOE Holdings Board will designate 

the members of these other committees and may 

designate a Chairman and a Vice-Chairman thereof. 

28See proposed Article 4.5 of the CBOE Holdings 

Bylaws. 

29See proposed Articles 4.2, 4.3 and 4.4 of the 

CBOE Holdings Bylaws. 

30See proposed Article 4.2 of the CBOE Holdings 

Bylaws. 

31See proposed Articles 4.3, 4.4 and 4.5 of the 

CBOE Holdings Bylaws. 

32See proposed Article 5.1 of the CBOE Holdings 

Bylaws. A ‘‘Trading Permit Holder’’ is defined in 

Section 1.1(f) of the Bylaws of the Exchange as: 

‘‘any individual, corporation, partnership, limited 

liability company or other entity authorized by the 

Rules that holds a Trading Permit. If a Trading 

Permit Holder is an individual, the Trading Permit 

Holder may also be referred to an ‘individual 

Trading Permit Holder.’ If a Trading Permit Holder 

is not an individual, the Trading Permit Holder may 

also be referred to as a ‘TPH organization.’ A 

Trading Permit Holder is a ‘member’ solely for 

purposes of the Act; however, one’s status as a 

Trading Permit Holder does not confer on that 

Person any ownership interest in the Exchange.’’

33See proposed Articles 5.1 and 5.2 of the CBOE 

Holdings Bylaws. 

34See proposed Articles 5.3, 5.4, 5.5, 5.6 and 5.7 

of the CBOE Holdings Bylaws. 

35The term ‘‘Related Person’’ is defined in 

proposed Article Fifth(a)(ix) of the CBOE Holdings 

Certificate of Incorporation and includes, among 

other things, persons associated with a Trading 

Permit Holder. 

The CBOE Holdings Board will 

appoint one of the directors on the 

CBOE Holdings Board to serve as 

Chairman of the CBOE Holdings 

Board.20 The CBOE Holdings Bylaws do 

not restrict the Chief Executive Officer 

of CBOE Holdings from serving in this 

role.21 The CBOE Holdings Board also 

may appoint an independent director to 

serve as Lead Director, who will 

perform such duties and possess such 

powers as the CBOE Holdings Board 

may from time to time prescribe.22 The 

CBOE Holdings Board will be a 

classified board with staggered terms of 

office, consisting of two classes of 

directors, each of which will serve for 

two-year terms.23 There is no limit on 

the number of terms a director may 

serve on the CBOE Holdings Board. 

Except with respect to the initial 

CBOE Holdings Board, the CBOE 

Holdings Board or a committee thereof 

each year will nominate candidates for 

the class of directors standing for 

election at the CBOE Holdings annual 

meeting of shareholders.24 In this 

regard, the Nominating and Governance 

Committee, which is described below, 

will nominate candidates for the CBOE 

Holdings Board. Each holder of CBOE 

Holdings voting stock will be entitled to 

one vote for each share of voting stock 

he or she holds, except as otherwise 

provided by the General Corporation 

Law of the State of Delaware (‘‘DGCL’’) 

or the Certificate of Incorporation or 

Bylaws of CBOE Holdings.25 At each 

annual meeting of the shareholders of 

CBOE Holdings at which a quorum is 

present, the individuals receiving a 

plurality of the votes cast will be elected 

directors of CBOE Holdings.26

(ii) Committees of CBOE Holdings 

CBOE Holdings will have an 

Executive Committee, an Audit 

Committee, a Compensation Committee, 

a Nominating and Governance 

Committee, as well as such other 

committees that the CBOE Holdings 

Board establishes.27 The Nominating 

and Governance Committee will consist 

of at least seven directors, all of whom 

will be Independent Directors and be 

recommended by the Nominating and 

Governance Committee for approval by 

the CBOE Holdings Board.28 The initial 

Nominating and Governance Committee 

after the Restructuring Transaction will 

be selected by the Prior CBOE Board or 

a committee thereof, and the 

composition requirements for the 

Nominating and Governance Committee 

will be satisfied in connection with the 

selection of members of the initial 

Nominating and Governance 

Committee. Members of the Executive, 

Audit, and Compensation Committees 

of CBOE Holdings will be recommended 

by the Nominating and Governance 

Committee for approval by the CBOE 

Holdings Board.29

The Executive Committee will have 

and may exercise all the powers and 

authority of the CBOE Holdings Board 

in the management of the business and 

affairs of CBOE Holdings, except it will 

not have the power or authority of the 

CBOE Holdings Board in reference to, 

among other things, amending the CBOE 

Holdings Certificate of Incorporation, 

adopting an agreement of merger or 

consolidation, approving the sale, lease 

or exchange of all or substantially all of 

the CBOE Holdings’ property and assets, 

or approving the dissolution of CBOE 

Holdings or a revocation of a 

dissolution.30 The Audit, 

Compensation, and Nominating and 

Governance Committees will have such 

duties and may exercise such authority 

as may be prescribed by the CBOE 

Holdings Board and their respective 

Charters as adopted by resolution of the 

CBOE Holdings Board.31

(iii) Officers of CBOE Holdings 

The officers of CBOE Holdings will be 

the Chief Executive Officer, a Chief 

Financial Officer, a President, one or 

more Vice-Presidents (the number 

thereof to be determined by the CBOE 

Holdings Board), a Secretary, a 

Treasurer, and such other officers as the 

CBOE Holdings Board may determine, 

including an Assistant Secretary or 

Assistant Treasurer.32 The CBOE 

Holdings Board by an affirmative vote of 

the majority of the board will appoint 

the Chief Executive Officer of CBOE 

Holdings, who will have general charge 

and supervision of the business of the 

CBOE Holdings.33 In general, the other 

officers of CBOE Holdings will have the 

duties or powers or both set out in the 

CBOE Holdings Bylaws, as well as such 

other duties or powers or both as the 

CBOE Holdings Board or the Chief 

Executive Officer may from time to time 

prescribe.34

(iv) Shareholder Restrictions 

In addition to the restrictions on the 

ability of certain CBOE Holdings 

stockholders to transfer their shares 

prior to and after an initial public 

offering if such an offering were to 

occur, the Certificate of Incorporation of 

CBOE Holdings places certain 

ownership and voting limits on the 

holders of CBOE Holdings stock and 

their Related Persons.35 These 

restrictions are intended to address the 

possibility that a person holding a 

controlling interest in an SRO could use 

that interest to affect the SRO’s 

regulatory responsibilities under the 


sroberts on PROD1PC77 with NOTICES
51656 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

36 In 2004, the Commission proposed rules that 

were designed to address conflicts of interest 

relating to for-profit SROs. See, e.g., Securities 

Exchange Act Release No. 50699 (Nov. 18, 2004), 

69 FR 71126 (Dec. 8, 2004). 

37See proposed Article Sixth(b) of the CBOE 

Holdings Certificate of Incorporation. 

38See proposed Article Sixth(b) of the CBOE 

Holdings Certificate of Incorporation. If and to the 

extent that shares of CBOE Holdings stock 

beneficially owned by any person or its Related 

Persons are held of record by any other person, this 

provision will be enforced against such record 

owner by requiring the redemption of shares of 

CBOE Holdings stock held by such record owner in 

a manner that will accomplish the ownership 

limitation applicable to such person and its Related 

Persons. 

39See proposed Article Sixth(a) of the CBOE 

Holdings Certificate of Incorporation. The voting 

limitation does not apply to a solicitation of a 

revocable proxy by any CBOE Holdings stockholder 

on behalf of CBOE Holdings or by directors or 

officers of CBOE Holdings on behalf of CBOE 

Holdings or to a solicitation of a revocable proxy 

by a stockholder in accordance with Regulation 14A 

under the Exchange Act. 17 CFR 240.14A. This 

exception, however, would not apply to a 

solicitation by a stockholder pursuant to Rule 14a–

2(b)(2) under the Exchange Act, which permits a 

solicitation made otherwise than on behalf of CBOE 

Holdings where the total number of persons 

solicited is not more than 10. 

40See proposed Article Sixth(a) of the CBOE 

Holdings Certificate of Incorporation. If and to the 

extent that shares of CBOE Holdings stock 

beneficially owned by any person or its Related 

Persons are held of record by any other person, this 

provision will be enforced against such record 

owner by limiting the votes entitled to be cast by 

such record owner in a manner that will 

accomplish the voting limitation applicable to such 

person and its Related Persons. 

41See proposed Articles Sixth(a) and (b) of the 

CBOE Holdings Certificate of Incorporation. 

42 15 U.S.C. 78c(a)(39). 

43See proposed Articles Sixth(a) and (b) of the 

CBOE Holdings Certificate of Incorporation. 

Exchange Act.36 In particular, these 

restrictions provide that: 

Ownership 

• No person (either alone or together 

with its Related Persons) may 

beneficially own shares of stock 

representing in the aggregate more than 

10% of the total outstanding shares of 

CBOE Holdings stock; provided, that, in 

the event a public offering of common 

stock is completed, the ownership 

percentage that a person is permitted to 

beneficially own will increase from 10% 

to 20% of the total outstanding shares 

of CBOE Holdings stock; 37 and 

• In the event that a person, either 

alone or together with its Related 

Persons, beneficially owns shares of 

stock representing more than 10% of the 

outstanding shares of stock (or, in the 

event that a public offering of common 

stock has been completed, 20% of the 

outstanding shares of stock), such 

person and its Related Persons will be 

obligated to sell promptly, and CBOE 

Holdings will be obligated to redeem 

promptly, at a price equal to the par 

value of such shares of stock and to the 

extent that funds are legally available 

for such redemption, that number of 

shares of stock necessary so that such 

person, together with its Related 

Persons, will beneficially own shares of 

stock representing in the aggregate no 

more than 10% of the outstanding 

shares of stock (or, in the event that a 

public offering of common stock has 

been completed, 20% of the outstanding 

shares of stock), after taking into 

account that such repurchased shares 

will become treasury shares and will no 

longer be deemed to be outstanding.38

Voting 

• No person (either alone or together 

with its Related Persons) will be entitled 

to vote or cause the voting of shares of 

stock beneficially owned by that person 

or those Related Persons to the extent 

that those shares would represent in the 

aggregate more than 10% of the total 

number of votes entitled to be cast on 

any matter, and no person (either alone 

or together with its Related Persons) 

will be entitled to vote more than 10% 

of the total number of votes entitled to 

be cast on any matter by virtue of 

agreements entered into by that person 

or those Related Persons with other 

persons not to vote shares of 

outstanding stock; provided, that, in the 

event a public offering of common stock 

is completed, the voting percentage that 

any person is permitted to control, 

whether through beneficial ownership 

or other agreement, will increase from 

10% to 20% of the total number of votes 

entitled to be cast on any matter; 39 and 

• In the event that a person, either 

alone or together with its Related 

Persons, is entitled to vote or cause the 

voting of shares representing in the 

aggregate more than 10% (or, in the 

event that a public offering of common 

stock has been completed, 20%) of the 

total number of votes entitled to be cast 

on any matter (including if it and its 

Related Persons possess this voting 

power by virtue of agreements entered 

into with other persons not to vote 

shares of stock), then such person, 

either alone or together with its Related 

Persons, will not be entitled to vote or 

cause the voting of these shares of stock 

to the extent that such shares represent 

in the aggregate more than 10% (or, in 

the event that a public offering of 

common stock has been completed, 

20%) of the total number of votes 

entitled to be cast on any matter, and 

any such votes purported to be cast in 

excess of this percentage will be 

disregarded.40

The CBOE Holdings Board of 

Directors may waive the provisions 

regarding ownership and voting limits 

by a resolution expressly permitting 

ownership or voting rights in excess of 

such limits (which resolution must be 

filed with and approved by the SEC 

prior to being effective), subject to a 

determination of the Board that: 41

• The acquisition of beneficial 

ownership in excess of the ownership 

limits or the exercise of voting rights in 

excess of the voting limits will not 

impair the ability of CBOE to discharge 

its responsibilities under the Exchange 

Act and the rules and regulations under 

the Exchange Act and is otherwise in 

the best interests of CBOE Holdings and 

its stockholders and CBOE; 

• The acquisition of beneficial 

ownership in excess of the ownership 

limits or the exercise of voting rights in 

excess of the voting limits will not 

impair the SEC’s ability to enforce the 

Exchange Act; 

• Neither the person obtaining the 

waiver nor any of its Related Persons is 

subject to any statutory disqualification 

(as defined in Section 3(a)(39) of the 

Exchange Act) if such person is seeking 

to obtain a waiver above the applicable 

ownership or voting percentage level; 42

and 

• For so long as CBOE Holdings 

directly or indirectly controls CBOE, 

neither the person obtaining the waiver 

nor any of its Related Persons is a 

Trading Permit Holder if such person is 

seeking to obtain a waiver above the 

applicable ownership or voting 

percentage level. 

In making these determinations, the 

CBOE Holdings Board may impose 

conditions and restrictions on the 

relevant stockholder and its Related 

Persons that it deems necessary, 

appropriate or desirable in furtherance 

of the objectives of the Exchange Act 

and the governance of CBOE 

Holdings.43

The CBOE Holdings Certificate of 

Incorporation also provides that the 

CBOE Holdings Board has the right to 

require any person and its Related 

Persons that the Board reasonably 

believes (i) to be subject to the voting or 

ownership restrictions summarized 

above, (ii) to beneficially own shares of 

CBOE Holdings stock entitled to vote on 

any matter in excess of the ownership 

restrictions discussed above, or (iii) to 

beneficially own an aggregate of 5% or 

more of the then outstanding shares of 

CBOE Holdings stock entitled to vote on 

any matter, which ownership has not 

been reported to CBOE Holdings, to 

provide to CBOE Holdings complete 

information as to all shares of the stock 

that such stockholder beneficially owns, 


sroberts on PROD1PC77 with NOTICES
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 51657 

44See proposed Article Sixth(d) of the CBOE 

Holdings Certificate of Incorporation. 

45See proposed Article Sixteenth(c) of the CBOE 

Holdings Certificate of Incorporation. 

46 Id. 

47Notwithstanding this restriction, nothing in the 

CBOE Holdings Certificate of Incorporation will be 

interpreted so as to limit or impede the rights of the 

SEC or CBOE to access and examine such 

confidential information pursuant to the federal 

securities laws and the rules and regulations 

thereunder, or to limit or impede the ability of any 

officers, directors, employees or agents of CBOE 

Holdings to disclose such confidential information 

to the SEC or CBOE. See proposed Article Fifteenth 

of the CBOE Holdings Certificate of Incorporation. 

48The books and records related to the exchange 

business of CBOE will be subject at all times to 

inspection and copying by the SEC and CBOE. Id. 

In addition, the CBOE Holdings Bylaws provide 

that the books of CBOE Holdings must be kept 

within the United States. See proposed Section 1.3 

of the CBOE Holdings Bylaws. 

49See proposed Article Sixteenth(b) of the CBOE 

Holdings Certificate of Incorporation. 

50See proposed Article Fourteenth of the CBOE 

Holdings Certificate of Incorporation. 

51 Id. 

52See proposed Article Eleventh of the CBOE 

Holdings Certificate of Incorporation and proposed 

Article 10.2 of the CBOE Holdings Bylaws. 

53See proposed Article Sixteenth(d) of the CBOE 

Holdings Certificate of Incorporation. 

54Any sale, transfer or assignment by CBOE 

Holdings of any shares of CBOE common stock will 

require an amendment to the proposed CBOE 

Certificate of Incorporation and consequently will 

be subject to prior approval by the Commission 

pursuant to the rule filing procedure under Section 

19 of the Act (15 U.S.C. 78s). See proposed Article 

Fourth of the CBOE Certificate of Incorporation. 

55 15 U.S.C. 78f. 

as well as any other information relating 

to the applicability to such stockholder 

of the voting and ownership 

requirements outlined above as may 

reasonably be requested.44

CBOE has received a legal opinion 

that the foregoing ownership and voting 

rights limitations, as well as the 

provisions providing for the redemption 

of shares held by a person (either alone 

or together with its Related Persons) in 

excess of the ownership limitation, are 

valid under Delaware law. 

(v) Self-Regulatory Function and 

Oversight 

The CBOE Holdings Certificate of 

Incorporation contains various 

provisions designed to protect the 

independence of the self-regulatory 

function of CBOE and to make clear the 

Commission’s and CBOE’s jurisdiction 

with respect to CBOE Holdings. For 

example, pursuant to the CBOE 

Holdings Certificate of Incorporation, 

for so long as CBOE Holdings controls 

CBOE, each officer, director and 

employee of CBOE Holdings must give 

due regard to the preservation of the 

independence of the self-regulatory 

function of CBOE and to its obligations 

under the Exchange Act.45 In addition, 

these persons are specifically prohibited 

from taking any actions that they 

reasonably should have known would 

interfere with the effectuation of any 

decisions by the Board of Directors of 

CBOE (‘‘CBOE Board’’) relating to 

CBOE’s regulatory functions, including 

disciplinary matters, or would adversely 

affect CBOE’s ability to carry out its 

responsibilities under the Exchange 

Act.46

The CBOE Holdings Certificate of 

Incorporation also contains a specific 

requirement that to the fullest extent 

permitted by applicable law, all 

confidential information pertaining to 

the self-regulatory function of CBOE 

(including but not limited to 

disciplinary matters, trading data, 

trading practices and audit information) 

contained in the books and records of 

CBOE that comes into the possession of 

CBOE Holdings will: (1) Not be made 

available to any persons other than to 

those officers, directors, employees and 

agents of CBOE Holdings that have a 

reasonable need to know the contents 

thereof; (2) be retained in confidence by 

CBOE Holdings and the officers, 

directors, employees and agents of 

CBOE Holdings; and (3) not be used for 

any commercial purposes.47 The CBOE 

Holdings Certificate of Incorporation 

also provides that for so long as CBOE 

Holdings controls CBOE, the books, 

records, premises, officers, directors and 

employees of CBOE Holdings will be 

deemed to be the books, records, 

premises, officers, directors and 

employees of CBOE for purposes of and 

subject to oversight pursuant to the Act, 

but only to the extent that such books, 

records, premises, officers, directors and 

employees of CBOE Holdings relate to 

the exchange business of CBOE.48

Further, the CBOE Holdings 

Certificate of Incorporation provides 

that CBOE Holdings will take reasonable 

steps necessary to cause its directors, 

officers and employees, prior to 

accepting such a position with CBOE 

Holdings, to consent in writing to the 

applicability to them of Article 

Fourteenth, Article Fifteenth and 

Sections (c) and (d) of Article Sixteenth 

of the CBOE Holdings Certificate of 

Incorporation, as applicable, with 

respect to their activities related to 

CBOE.49 In addition, CBOE Holdings 

will take reasonable steps necessary to 

cause its agents, prior to accepting such 

a position with CBOE Holdings, to be 

subject to the provisions of Article 

Fourteenth, Article Fifteenth and 

Sections (c) and (d) of Article Sixteenth 

of the CBOE Holdings Certificate of 

Incorporation, as applicable, with 

respect to their activities related to 

CBOE. 

The CBOE Holdings Certificate of 

Incorporation also provides that CBOE 

Holdings, its directors, officers, agents 

and employees, irrevocably submit to 

the jurisdiction of the U.S. federal 

courts, the SEC, and CBOE, for the 

purposes of any suit, action or 

proceeding pursuant to U.S. federal 

securities laws or the rules or 

regulations thereunder, commenced or 

initiated by the SEC arising out of, or 

relating to, CBOE’s activities.50 Further, 

the Certificate of Incorporation provides 

that CBOE Holdings, its directors, 

officers, agents and employees, waive, 

and agree not to assert by way of 

motion, as a defense or otherwise in any 

such suit, action or proceeding, any 

claims that they are not personally 

subject to the jurisdiction of the SEC, 

that the suit, action or proceeding is an 

inconvenient forum or that the venue of 

the suit, action or proceeding is 

improper, or that the subject matter 

thereof may not be enforced in or by 

such courts or agency.51

In addition, the CBOE Holdings 

Certificate of Incorporation and Bylaws 

provide that, before any amendment or 

repeal of any provision of the Certificate 

of Incorporation and Bylaws of CBOE 

Holdings becomes effective, such 

amendment or repeal will be submitted 

to the Board of Directors of CBOE, and 

if such amendment or repeal must be 

filed with or filed with and approved by 

the Commission, then such amendment 

or repeal will not become effective until 

filed with or filed with and approved by 

the Commission, as the case may be.52

The CBOE Holdings Certificate of 

Incorporation also contains a provision 

that requires each director of the Board 

of CBOE Holdings to take into 

consideration the effect that CBOE 

Holdings’ actions would have on 

CBOE’s ability to carry out its 

responsibilities under the Exchange 

Act.53

(B) CBOE 

Following the demutualization, CBOE 

will become a Delaware for-profit stock 

corporation that will be wholly-owned 

by CBOE Holdings. CBOE will issue a 

total of 1,000 shares of common stock, 

all of which will be owned by CBOE 

Holdings immediately following the 

demutualization transaction.54 CBOE, 

not CBOE Holdings, will continue to be 

the entity registered as a national 

securities exchange under Section 6 of 

the Exchange Act and, accordingly, 

CBOE will continue to be an SRO.55 The 

proposed CBOE Certificate of 

Incorporation, Bylaws and Rules will 

govern the activities of CBOE. CBOE’s 


sroberts on PROD1PC77 with NOTICES
51658 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

56 Id. 

57See proposed Article Fifth(b) of the CBOE 

Certificate of Incorporation and proposed Section 

3.1 of the CBOE Bylaws. 

58See proposed Section 3.1 of the CBOE Bylaws. 

A ‘‘Non-Industry Director’’ is defined as a person 

who is not an Industry Director. An ‘‘Industry 

Director’’ is defined as any director who (i) is a 

holder of a Trading Permit or otherwise subject to 

regulation by the Exchange; (ii) is a broker-dealer 

or an officer, director or employee of a broker-dealer 

or has been in any such capacity within the prior 

three years; (iii) is, or was within the prior three 

years, associated with an entity that is affiliated 

with a broker-dealer whose revenues account for a 

material portion of the consolidated revenues of the 

entities with which the broker-dealer is affiliated; 

(iv) has a material ownership interest in a brokerdealer and has investments in broker-dealers that 

account for a material portion of the director’s net 

worth; (v) has a consulting or employment 

relationship with or has provided professional 

services to the Exchange or any of its affiliates or 

has had such a relationship or has provided such 

services within the prior three years; or (vi) 

provides, or has provided within the prior three 

years, professional or consulting services to a 

broker-dealer, or to an entity with a 50% or greater 

ownership interest in a broker-dealer whose 

revenues account for a material portion of the 

consolidated revenues of the entities with which 

the broker-dealer is affiliated, and the revenue from 

all such professional or consulting services 

accounts for a material portion of either the 

revenues received by the director or the revenues 

received by the director’s firm or partnership. 

Notwithstanding the foregoing, a director will not 

be deemed to be an ‘‘Industry Director’’ solely 

because either (A) the person is or was within the 

prior three years an outside director of a brokerdealer or an outside director of an entity that is 

affiliated with a broker-dealer, provided that the 

broker-dealer is not a holder of a Trading Permit or 

otherwise subject to regulation by the Exchange, or 

(B) the person is or was within the prior three years 

associated with an entity that is affiliated with a 

broker-dealer whose revenues do not account for a 

material portion of the consolidated revenues of the 

entities with which the broker-dealer is affiliated, 

provided that the broker-dealer is not a holder of 

a Trading Permit or otherwise subject to regulation 

by the Exchange. At all times, at least one NonIndustry Director will be a Non-Industry Director 

exclusive of the exceptions provided for in the 

immediately preceding sentence and will have no 

material business relationship with a broker or 

dealer or the Exchange or any of its affiliates. For 

purposes of proposed Section 3.1 of the CBOE 

Bylaws, an ‘‘outside director’’ is a director of an 

entity who is not an employee or officer (or any 

person occupying a similar status or performing 

similar functions) of such entity. The CBOE Board 

or the Nominating and Governance Committee will 

make all of the foregoing materiality 

determinations. In addition, in determining under 

(iii), (vi) and (B) above whether a broker-dealer’s 

revenues account for a material portion of the 

consolidated revenues of the entities with which 

the broker-dealer is affiliated, the revenues of the 

broker-dealer will be compared with the 

consolidated revenues of all of the entities affiliated 

with the broker-dealer as well as the broker-dealer 

(i.e., all of the entities in the broker-dealer’s 

corporate family, inclusive of the broker-dealer). A 

director will qualify as a Non-Industry Director only 

so long as such director meets the requirements for 

that position. 

59See Section 6.1 of the current Constitution of 

the Exchange. A ‘‘Public Director’’ is a non-member 

who is not a broker-dealer or person affiliated with 

a broker-dealer. 

60 Id. For purposes of Class II of the Prior CBOE 

Board, an ‘‘At-Large Director’’ is a person who 

functions as a member in any recognized capacity 

either individually or on behalf of a member 

organization, who is a CBSX Permit holder or an 

executive officer of a CBSX Permit holder, or who 

is an Interim Trading Permit holder or executive 

officer of an Interim Trading Permit holder. For 

purposes of Class III of the Prior CBOE Board, an 

‘‘At-Large Director’’ is a member who functions as 

a member in any recognized capacity either 

individually or on behalf of a member organization. 

61 Id. A ‘‘Floor Director’’ is a member who 

directly or indirectly owns and controls a 

membership and is primarily engaged in business 

on the floor of the Exchange in the capacity of a 

member. 

62 Id. The ‘‘Lessor Director’’ is a person who 

directly or indirectly owns and controls a 

membership with respect to which s/he acts solely 

as lessor and who is not actively engaged in 

business as a broker-dealer or as a person associated 

with a broker-dealer as those terms are defined in 

the Exchange Act. 

63 Id. An ‘‘Off-Floor Director’’ is an executive 

officer of a member organization that primarily 

conducts a non-member public customer business 

and who is not individually engaged in business on 

the Exchange floor. 

64See Sections 6.1 and 8.2 of the current 

Constitution of the Exchange. 

65Unlike the Prior CBOE Board, the Chairman of 

the CBOE Board after the Restructuring Transaction 

will be defined as an Industry Director. 

66See proposed Section 3.1 of the CBOE Bylaws. 

67 Id. 

68See proposed Section 3.6 of the CBOE Bylaws. 

69See proposed Section 5.1(a) of the CBOE 

Bylaws. 

70See proposed Section 3.7 of the CBOE Bylaws. 

The Vice Chairman will: (i) Preside over the 

meetings of the CBOE Board in the event the 

Chairman of the Board is absent or unable to do so, 

(ii) serve as chair the Trading Advisory Committee, 

(iii) except as otherwise provided in the Rules or 

resolution of the CBOE Board, appoint, subject to 

the approval of the CBOE Board, the individuals to 

serve on all Trading Permit Holder committees 

established in the Rules or by resolution of the 

Board, and (iv) exercise such other powers and 

perform such other duties as are delegated to the 

Vice Chairman of the Board by the CBOE Board. 

current Certificate of Incorporation, 

Constitution (which will be replaced by 

the proposed Bylaws) and Rules are 

proposed to be amended to reflect, 

among other things, CBOE’s status as 

wholly-owned subsidiary of CBOE 

Holdings, its management by the CBOE 

Board and its designated officers, and its 

self-regulatory responsibilities under 

Section 6 of the Exchange Act.56

(i) CBOE Board of Directors 

After the Restructuring Transaction, 

the business and affairs of CBOE will be 

managed by or under the direction of 

the CBOE Board. The CBOE Board will 

consist of between 11 and 15 directors, 

and except with respect to the initial 

board of 13 directors as discussed 

below, will be fixed by the CBOE Board 

from time to time.57 After the 

Restructuring Transaction, the CBOE 

Board will be reduced from 23 directors 

to 13 directors. This initial CBOE Board 

will have 13 directors who will consist 

of the CBOE’s Chief Executive Officer, 

seven Non-Industry Directors and five 

Industry Directors.58 The initial CBOE 

Board will be selected by the Prior 

CBOE Board or a committee thereof, and 

the composition requirements for the 

CBOE Board will be satisfied in 

connection with the selection of 

directors for the initial CBOE Board. It 

is anticipated that the same individuals 

will be on the CBOE Holdings Board 

and the CBOE Board immediately 

following the Restructuring Transaction. 

This initial CBOE Board will be 

smaller than the Prior CBOE Board and 

will have a majority of public directors 

(i.e., Non-Industry Directors). In 

comparison, as indicated above, the 

Prior CBOE Board has 23 directors. 

Eleven of these directors are Public 

Directors,59 two are At-Large 

Directors,60 four are Floor Directors,61

one is a Lessor Director,62 four are OffFloor Directors,63 and one is the 

Chairman of the Board (who is also the 

Chief Executive Officer of the 

Exchange).64 Thus, the Prior CBOE 

Board consists of eleven public 

directors, eleven directors from the 

industry, and the Chairman of the 

Board.65

After the Restructuring Transaction, 

the number of Non-Industry Directors 

and Industry Directors on the CBOE 

Board may be increased from time to 

time by resolution adopted by the CBOE 

Board, but in no event will the number 

of Industry Directors constitute less than 

30% of the members of the CBOE Board 

and in no event will the number of NonIndustry Directors constitute less than a 

majority of the members of the CBOE 

Board.66 In addition, at all times at least 

20% of directors serving on the CBOE 

Board shall be Industry Directors 

nominated (or otherwise selected 

through the petition process) by the 

Industry-Director Subcommittee 

(directors selected through this process 

are referred to as ‘‘Representative 

Directors’’).67 This nomination process 

is described below. 

The CBOE Board will appoint one of 

the directors on the CBOE Board to 

serve as Chairman of the CBOE Board.68

The CBOE Bylaws do not restrict the 

Chief Executive Officer of CBOE from 

serving in this role.69 Each year 

following the annual election of the 

directors, the CBOE Board will select, 

from among the Industry Directors, a 

Vice Chairman of the CBOE Board to 

serve for a term of one year and until a 

successor is elected or appointed and 

qualified.70 The CBOE Board also may 

appoint one of the Non-Industry 

Directors to serve as Lead Director, who 

will perform such duties and possess 

such powers as the CBOE Board may 


sroberts on PROD1PC77 with NOTICES
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 51659 

71See proposed Section 3.8 of the CBOE Bylaws. 

The Prior CBOE Board currently has a Lead 

Director, and as provided in proposed Section 3.8 

of the CBOE Bylaws, CBOE has the ability to 

continue the practice after the Restructuring 

Transaction. 

72See proposed Section 3.1 of the CBOE Bylaws. 

With regard to the initial CBOE Board, the initial 

term of the Class I directors will end with the first 

annual stockholders meeting to be held by CBOE 

following the Restructuring Transaction, and the 

initial term of the Class II directors will end with 

the second annual stockholders meeting following 

the Restructuring Transaction. Class I directors will 

initially consist of the Chief Executive Officer, three 

Non-Industry Directors and two Industry Directors 

(one of whom is a Representative Director (as 

described below). Class II directors will initially 

consist of four Non-Industry Directors and three 

Industry Directors (two of whom are Representative 

Directors). The CBOE Board is authorized to assign 

members of the Board already in office to such 

classes at the time the classification becomes 

effective. 

73See proposed Section 4.5 of the CBOE Bylaws. 

74 Id. In performing this function, the Nominating 

and Governance Committee will determine, subject 

to review by the Board, whether a director 

candidate satisfies the applicable qualifications for 

election as a director, and the decision of that 

committee shall, subject to review, if any, by the 

Board, be final. See proposed Section 3.1 of the 

CBOE Bylaws. It is anticipated that the Nominating 

and Governance Committee will use director 

questionnaires in connection with determining the 

qualifications of director candidates. 

75See Section 4.1 of the current Constitution of 

the Exchange. The current Nominating Committee, 

as the name suggests, only has responsibility for 

nominations. This is different than the 

responsibilities of the new Nominating and 

Governance Committee, which will have authority 

with respect to nominations as well as governance 

issues. 

76See proposed Section 3.1 of the CBOE Bylaws. 

77 Id. 

78The proposed Voting Agreement is attached as 

Exhibit 5F to this proposed rule change. 

79See proposed Section 3.2 of the CBOE Bylaws. 

This section addresses the fair representation 

requirement for members in Section 6(b)(3) of the 

Exchange Act. 15 U.S.C. 78f(b)(3). 

80See proposed Section 3.2 of the CBOE Bylaws. 

81 Id. 

82 Id. 

83 Id. 

84 Id. 

85 Id. 

86 Id. 

from time to time prescribe.71 The CBOE 

Board will continue to be a classified 

board with staggered terms of office, 

however, the CBOE Board will consist 

of two classes of directors, each of 

which serve for two years, as opposed 

to the current board that consists of 

three classes of directors, each of which 

serve for terms of three years.72 There is 

no limit on the number of terms a 

director may serve on the CBOE Board. 

(ii) Nomination and Election of 

Directors 

The Nominating and Governance 

Committee of CBOE will consist of at 

least seven directors, including both 

Industry Directors and Non-Industry 

Directors, and will at all times have a 

majority of directors that are NonIndustry Directors.73 All members of the 

committee will be recommended by the 

Nominating and Governance Committee 

for approval by the Board. The initial 

Nominating and Governance Committee 

after the Restructuring Transaction will 

be selected by the Prior CBOE Board or 

a committee thereof, and the 

composition requirements for the 

Nominating and Governance Committee 

will be satisfied in connection with the 

selection of members of the initial 

Nominating and Governance 

Committee. Subject to the discussion 

below, the Nominating and Governance 

Committee will have the authority to 

nominate individuals for election to the 

CBOE Board.74

The composition of the new 

Nominating and Governance Committee 

under the CBOE Bylaws is different than 

the composition of the current 

Nominating Committee under the 

Constitution of the Exchange.75 In 

particular, the current Nominating 

Committee is composed of ten members. 

Eight of these members are from the 

industry and two of these members are 

from the public. Thus, unlike the new 

Nominating and Governance 

Committee, the current Nominating 

Committee consists of a majority of 

members from the industry. 

In addition, the process for selecting 

the new Nominating and Governance 

Committee, which is described below, is 

different than the process for selecting 

the current Nominating Committee. In 

this regard, the current Nominating 

Committee is not a committee of the 

Prior CBOE Board, but rather a separate 

committee elected by the voting 

members of the Exchange. 

After the Restructuring Transaction, 

the new Nominating and Governance 

Committee will be bound to accept and 

nominate the Representative Directors 

recommended by the Industry-Director 

Subcommittee (described below), 

provided that the Representative 

Directors so nominated by the IndustryDirector bcommittee are not opposed by 

a petition candidate (described 

below).76 If such Representative 

Directors are opposed by a petition 

candidate then the Nominating and 

Governance Committee will be bound to 

accept and nominate the Representative 

Directors who receive the most votes 

pursuant to a Run-Off Election 

(described below).77 In addition, CBOE 

and CBOE Holdings will enter into a 

Voting Agreement pursuant to which 

CBOE Holdings will agree to vote in 

favor of the Representative Directors 

recommended by the Nominating and 

Governance Committee.78

The Industry-Director Subcommittee 

of the Nominating and Governance 

Committee will recommend a number of 

Industry Directors (i.e., Representative 

Directors) that equals 20% of the total 

number of directors serving on the 

CBOE Board, provided that if 20% of 

the directors then serving on the CBOE 

Board is not a whole number, such 

number of Representative Directors will 

be rounded up to the next whole 

number.79 Industry Directors not 

selected by the Industry-Director 

Subcommittee will be selected by the 

Nominating and Governance 

Committee.80 The Industry-Director 

Subcommittee will consist of all of the 

Industry Directors then serving on the 

Nominating and Governance 

Committee.81

The Industry-Director Subcommittee 

will provide a mechanism for Trading 

Permits Holders to provide input to the 

Industry-Director Subcommittee with 

respect to nominees for the 

Representative Directors.82 The Industry 

Director-Subcommittee will issue a 

circular to the Trading Permit Holders 

identifying the Representative Director 

nominees selected by the committee not 

later than January 15th, or the first 

business day thereafter if January 15th 

is not a business day.83

Holders of Trading Permits may 

nominate alternative candidates for 

election to the Representative Director 

positions to be elected in a given year 

by submitting a petition signed by 

individuals representing not less than 

10% of the total outstanding Trading 

Permits at that time.84 The names of all 

Representative Director nominees 

recommended by the Industry-Director 

Subcommittee and those selected 

pursuant to a valid and timely petition 

will, immediately following their 

selection, be given to the Secretary who 

will promptly issue a circular to all of 

the Trading Permit Holders identifying 

all such Representative Director 

candidates.85

If one or more valid petitions are 

received, the Secretary will issue a 

circular to all of the Trading Permit 

Holders identifying those individuals 

nominated for Representative Director 

by the Industry-Director Subcommittee 

and those individuals nominated for 

Representative Director through the 

petition process as well as of the time 

and date of a run-off election to 

determine which individuals will be 

nominated as Representative Director(s) 

by the Nominating and Governance 

Committee (the ‘‘Run-off Election’’).86 In 

any Run-off Election, each holder of a 

Trading Permit will have one vote with 


sroberts on PROD1PC77 with NOTICES
51660 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

87 In any Run-off Election, Trading Permits 

representing one-third of the total outstanding 

Trading Permits entitled to vote, when present in 

person or represented by proxy, will constitute a 

quorum for purposes of the Run-off Election. Id. 

88 Id. 

89See proposed Section 4.1(a) of the CBOE 

Bylaws. 

90 Id. 

91See Section 7.2 of the current Constitution of 

the Exchange. 

92See Section 7.3 of the current Constitution of 

the Exchange. 

93See Section 7.4 of the current Constitution of 

the Exchange. 

94The current Regulatory Oversight Committee 

was created by a charter. 

95See proposed Sections 4.2, 4.3 and 4.4 of the 

CBOE Bylaws. The selection and composition of the 

Nominating and Governance Committee is 

discussed above. 

96See proposed Section 4.2 of the CBOE Bylaws. 

97See proposed Section 4.3 of the CBOE Bylaws. 

98See proposed Section 4.4 of the CBOE Bylaws. 

99See proposed Section 4.6 of the CBOE Bylaws. 

100See proposed Section 4.2 of the CBOE Bylaws. 

respect to each Trading Permit held by 

such Trading Permit Holder for each 

Representative Director position to be 

filled that year; provided, however, that 

no holder of Trading Permits, either 

alone or together with its affiliates, may 

account for more than 20% of the votes 

cast for a candidate, and any votes cast 

by a holder of Trading Permits, either 

alone or together with its affiliates, in 

excess of this 20% limitation shall be 

disregarded.87 The Secretary will issue 

a circular to all of the Trading Permit 

Holders setting forth the results of the 

Run-off Election.88 The number of 

individual Representative Director 

nominees equal to the number of 

Representative Director positions to be 

filled that year receiving the largest 

number of votes in the Run-off Election 

(after taking into account the voting 

limitation set forth above) will be the 

persons approved by the Trading Permit 

Holders to be nominated as the 

Representative Director(s) by the 

Nominating and Governance Committee 

for that year. 

(iii) Committees of CBOE 

In addition to the Nominating and 

Governance Committee discussed 

above, CBOE will have the following 

CBOE Board committees: An Executive 

Committee, an Audit Committee, a 

Compensation Committee, a Regulatory 

Oversight Committee and such other 

standing and special committees as may 

be approved by the CBOE Board.89

Except as may be otherwise provided in 

the CBOE Bylaws or as may be 

otherwise provided for from time to 

time by resolution of the CBOE Board, 

the Board may, at any time, with or 

without cause, remove any member of 

any such committees of the Board.90

With regard to the Prior CBOE Board, 

it also has an Executive Committee, an 

Audit Committee, a Compensation 

Committee, and a Regulatory Oversight 

Committee. The current Executive 

Committee consists of the Chairman of 

the Prior CBOE Board, the Vice 

Chairman of that Board, and four other 

persons who are directors (each of 

which is appointed by the Vice 

Chairman with the approval of the Prior 

CBOE Board).91 At least 50% of the 

members of that committee (excluding 

the Chairman) are Public Directors. The 

current Audit Committee consists of at 

least three directors appointed by the 

Chairman of the Prior CBOE Board with 

the approval of that Board, the exact 

number to be determined from time to 

time by that Board.92 At least 50% of the 

members of that committee are Public 

Directors. The current Compensation 

Committee consists of the Vice 

Chairman of the Prior CBOE Board, the 

Lessor Director, the Chairman of the 

Financial Planning Committee (a 

committee of the Exchange), one or 

more Off-Floor Directors, and such 

number of Public Directors that will 

constitute at least 50% of the members 

of that committee.93 The Off-Floor 

Director(s) and the Public Directors are 

appointed to that committee by the 

Chairman of the Prior CBOE Board with 

the approval of that Board. The current 

Regulatory Oversight Committee 

consists of at least four directors, all of 

whom are Public Directors.94 The 

members of that committee are 

appointed by the Chairman of the Prior 

CBOE Board with the approval of that 

Board. 

After the Restructuring Transaction, 

members on the new Executive, Audit, 

and Compensation Committees of CBOE 

will be recommended by the 

Nominating and Governance Committee 

for approval by the CBOE Board.95 The 

new Executive Committee will consist 

of the Chairman of the CBOE Board, the 

Chief Executive Officer (if a director), 

the Vice Chairman of the CBOE Board, 

the Lead Director (if any), at least one 

Representative Director and such other 

number of directors that the Board 

deems appropriate, provided that at all 

times the majority of the directors 

serving on the Executive Committee are 

Non-Industry Directors.96 CBOE notes 

that if the Vice Chairman is a 

Representative Director, the requirement 

to have at least one Representative 

Director on the new Executive 

Committee will be satisfied by the Vice 

Chairman’s participation on that 

committee. The new Audit Committee 

will consist of at least three directors, all 

of whom will be Non-Industry 

Directors.97 The new Compensation 

Committee will consist of at least three 

directors, all of whom must be NonIndustry Directors.98 The new 

Regulatory Oversight Committee will 

consist of at least four directors, all of 

whom shall be Non-Industry Directors 

and all of whom shall be recommended 

by the Non-Industry Directors on the 

Nominating and Governance Committee 

for approval by the Board.99

The new Executive Committee will 

have and may exercise all the powers 

and authority of the CBOE Board in the 

management of the business and affairs 

of CBOE, except it will not have the 

power and authority of the Board to (i) 

approve or adopt or recommend to the 

stockholders any action or matter (other 

than the election or removal of 

directors) expressly required by 

Delaware law to be submitted to 

stockholders for approval, including 

without limitation, amending the 

proposed CBOE Certificate of 

Incorporation, adopting an agreement of 

merger or consolidation, approving a 

sale, lease or exchange of all or 

substantially all of CBOE’s property and 

assets, or approval of a dissolution of 

CBOE or revocation of a dissolution, or 

(ii) adopt, alter, amend or repeal any 

bylaw of CBOE.100

Although the current Executive 

Committee (as well as the new 

Executive Committee) generally can act 

in the place of the CBOE Board, the 

practice of the current Executive 

Committee has been that it generally 

does not make a decision unless there 

is a need for a CBOE Board-level 

decision between CBOE Board meetings 

due to the time sensitivity of the matter. 

In addition, in situations when the 

current Executive Committee does make 

a decision between CBOE Board 

meetings, the CBOE Board is generally 

aware ahead of time of the potential that 

the Executive Committee may need to 

make the decision. This is the case 

because oftentimes the decision relates 

to a time-sensitive issue that is 

discussed by the CBOE Board at a CBOE 

Board meeting, but that is not yet ripe 

for decision, and the CBOE Board is 

advised that the Executive Committee 

may need to make a decision on the 

issue prior to the next CBOE Board 

meeting. It is expected that the foregoing 

practices will continue with the new 

Executive Committee. However, with a 

smaller CBOE Board after the 

Restructuring Transaction (13 directors 

versus 23 directors), it likely will be 

easier to convene the CBOE Board on 

short notice and there may be less of a 

need than there is today for the new 


sroberts on PROD1PC77 with NOTICES
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 51661 

101See proposed Sections 4.3, 4.4 and 4.5 of the 

CBOE Bylaws. 

102See proposed Section 4.6 of the CBOE Bylaws. 

103See proposed Section 4.1(b) of the CBOE 

Bylaws. ‘‘Exchange committees’’ refers to 

committees that are not solely composed of 

directors from the CBOE Board. Except as may be 

otherwise provided in the CBOE Bylaws, the Rules 

or the resolution of the CBOE Board establishing 

any such other committee, the Vice Chairman of the 

Board, with the approval of the CBOE Board, will 

appoint the members of such Exchange committees 

(other than the committees of the CBOE Board) and 

may designate, with the approval of the Board, a 

Chairman and a Vice-Chairman thereof. Except as 

may be otherwise provided in the Bylaws or the 

Rules, the CBOE Board may, at any time, with or 

without cause, remove any member of any such 

Exchange committees. 

104See proposed Section 4.7 of the CBOE Bylaws. 

105See Section 7.5 of the current Constitution of 

the Exchange. 106See CBOE Rule 2.1(a). 107See proposed Section 3.5(a) of the CBOE 

Bylaws. 108 Id. 

109See proposed Section 3.5(b) of the CBOE 

Bylaws. Any individual recommended by the 

Industry-Director Subcommittee to fill the vacancy 

of a Representative Director position must qualify 

as an Industry Director. 

110See proposed Section 3.4(c) of the CBOE 

Bylaws. 

Executive Committee to make decisions. 

It may also be easier for the CBOE Board 

to act by unanimous written consent. In 

any event, the CBOE Board is, and after 

the Restructuring Transaction will be, 

fully informed of any decision made by 

the current (and new) Executive 

Committee at its next meeting and can 

always decide to review that decision 

and take different action. 

The new Audit, Compensation, and 

Nominating and Governance 

Committees will have such duties and 

may exercise such authority as may be 

prescribed by the CBOE Board and their 

respective Charters as adopted by 

resolution of the Board.101 Similarly, the 

new Regulatory Oversight Committee 

will have such duties and may exercise 

such authority as may be prescribed by 

resolution of the Board, the CBOE 

Bylaws or the Rules of the Exchange.102

In general, the new Regulatory 

Oversight Committee will be charged 

with overseeing the independence and 

integrity of the regulatory functions of 

the Exchange. 

In addition to these CBOE Board 

committees, CBOE will have as 

Exchange committees a Trading 

Advisory Committee and such other 

committees as may be provided in the 

CBOE Bylaws or the Rules or as may be 

from time to time created by the CBOE 

Board.103 The Trading Advisory 

Committee will advise the Office of the 

Chairman regarding matters of interest 

to Trading Permit Holders.104 It will 

consist of such number of members as 

set by the CBOE Board of Directors from 

time to time. The majority of the 

members of the Trading Advisory 

Committee will be individuals involved 

in trading either directly or through 

their firms. The Vice Chairman will be 

the Chairman of the Trading Advisory 

Committee and will appoint, with the 

approval of the CBOE Board, the other 

members of the committee. 

The Trading Advisory Committee 

essentially will serve as a replacement 

for the current Floor Directors 

Committee, which advises the Prior 

CBOE Board and the Office of the 

Chairman of that Board regarding 

trading and floor-related issues. The 

Floor Directors Committee consists of 

those directors of the Prior CBOE Board 

who are primarily engaged in business 

on the floor of the Exchange (whether 

serving as Floor Directors or At-Large 

Directors), the Lessor Director as a nonvoting member of that committee, and 

such other persons as may be appointed 

as voting or nonvoting members of that 

committee by the Vice Chairman of the 

Prior CBOE Board with the approval of 

that Board.105

The Exchange also will continue to 

have as an Exchange committee after the 

Restructuring Transaction the Business 

Conduct Committee (‘‘BCC’’), the 

functions of which are described 

below.106 With regard to the 

composition of the current BCC, the 

Prior CBOE Board determines the 

number of members of the committee. In 

selecting members of that committee, 

the intent is to pick individuals who 

represent a broad cross section of the 

membership of the Exchange as well as 

individuals who represent the public. It 

is anticipated that the make-up of the 

BCC will be the same after the 

Restructuring Transaction. 

(iv) Filling of Vacancies and Removal 

for Cause 

Any vacancy in the CBOE Board, 

however occurring, including a vacancy 

resulting from an increase in the 

number of directors, may be filled by 

vote of a majority of the directors then 

in office, although less than a quorum, 

or by a sole remaining director, 

provided such new director qualifies for 

the category in which the vacancy 

exists.107 A director elected to fill a 

vacancy will hold office until the next 

annual meeting of stockholders, subject 

to the election and qualification of his 

or her successor and to his or her earlier 

death, resignation or removal.108 In the 

event the CBOE Board fills a vacancy 

resulting from a Representative Director 

position becoming vacant prior to the 

expiration of such Representative 

Director’s term, or resulting from the 

creation of an additional Representative 

Director position required by an 

increase in the size of the CBOE Board, 

the Industry-Director Subcommittee of 

the Nominating and Governance 

Committee will either (i) recommend an 

individual to the CBOE Board to be 

elected to fill such vacancy or (ii) 

provide a list of recommended 

individuals to the CBOE Board from 

which the Board shall elect the 

individual to fill such vacancy.109

In addition, the CBOE Bylaws provide 

that no director may be removed from 

office by a vote of the stockholders at 

any time except for cause.110 For 

purposes of this provision, ‘‘cause’’

means only (i) a breach of a director’s 

duty of loyalty to CBOE (as a 

corporation) or its stockholders, (ii) acts 

or omissions not in good faith or which 

involve intentional misconduct or a 

knowing violation of law, or (iii) 

transactions from which a director 

derived an improper personal benefit. 

Any director may be removed for cause 

by the holders of a majority of the shares 

of stock then entitled to be voted at an 

election of directors. 

(v) Disciplinary Matters and Trading 

and Disciplinary Rule Changes 

The current process for the hearing of 

disciplinary matters, and the rules 

governing that process, will remain 

substantively unchanged after the 

Restructuring Transaction. Under CBOE 

Rule 17.6(a), the hearing of a 

disciplinary matter currently is 

conducted by one or more members of 

the BCC. As indicated above, the BCC 

currently consists of industry and 

public representatives. It has been the 

BCC’s general practice to use threeperson BCC hearing panels that include 

both industry and public representation. 

CBOE is not proposing to change this 

process following demutualization. 

Consistent with CBOE Rule 17.9, any 

decision of a BCC hearing panel that is 

not composed of at least a majority of 

the BCC is reviewed by the full BCC. 

In addition, the current process for 

the review of appeals of disciplinary 

actions, and the rules governing that 

process, will remain substantively 

unchanged after the Restructuring 

Transaction. Under CBOE Rule 17.10(b), 

the CBOE Board is the body vested with 

the authority to review appeals of 

disciplinary actions. The CBOE Board 

may appoint a committee of the Board 

composed of at least 3 directors to 

review the appeal, but the decision of 

that committee must be ratified by the 

CBOE Board. Thus, after the 

Restructuring Transaction, Trading 

Permit Holders will have a say in the 


sroberts on PROD1PC77 with NOTICES
51662 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

111Prior to Restructuring Transaction, it has been 

the CBOE Board’s general practice to appoint a 

cross-section of directors to the CBOE Board 

committees that review appeals of disciplinary 

actions. These committees usually consist of a floor 

or at-large director, an off-floor director, and a 

public director. CBOE is not proposing to change 

this general practice and would expect that CBOE 

Board committees that review disciplinary decision 

appeals after the Restructuring Transaction would 

generally consist of an Industry Director who or 

whose firm is engaged in trading on the Exchange, 

an Industry Director whose firm is significantly 

engaged in conducting a securities business with 

public customers, and a Non-Industry Director. 

112A majority of the Trading Advisory Committee 

will be composed of individuals involved in trading 

either directly or through their firms. 

113See proposed Section 5.1(a) of the CBOE 

Bylaws. 

114See proposed Sections 5.1(a) and 5.2 of the 

CBOE Bylaws. 

115See proposed Sections 5.3, 5.4, 5.5, 5.6, 5.7 

and 5.8 of the CBOE Bylaws. 

116See Section 8.1(a) of the current Constitution 

of the Exchange. 

117See proposed Section 3.7 of the CBOE Bylaws. 

118See proposed Section 5.5 of the CBOE Bylaws. 

119See Section 8.1(b) of the current Constitution 

of the Exchange. 

120 15 U.S.C. 78f. 

121 15 U.S.C. 78s(b). 

122 17 CFR 240.19b–4. 

123See proposed Article Fifth(d) of the CBOE 

Certificate of Incorporation. 

124See proposed Article Eleventh of the CBOE 

Certificate of Incorporation. 

review of such appeals by virtue of their 

representation on the CBOE Board, as 

discussed above.111

The current process for the review of 

proposed trading and disciplinary rules 

also will remain substantively 

unchanged after the Restructuring 

Transaction. Under proposed Section 

10.1 of the CBOE Bylaws, the CBOE 

Board will continue to be the body that 

is tasked with approving rule changes, 

including changes to trading and 

disciplinary rules. Thus, Trading Permit 

Holders will have a voice in the review 

of these rules by virtue of their 

representation on the CBOE Board. In 

addition, the current Floor Directors 

Committee reviews many of CBOE’s rule 

changes in an advisory capacity, 

particularly trading rules, but the Floor 

Directors Committee has no decisionmaking authority with regard to rule 

changes. After the Restructuring 

Transaction, the Trading Advisory 

Committee, which is described above, 

will essentially take the place of the 

Floor Directors Committee.112 It is 

expected that the Trading Advisory 

Committee will perform the same rule 

review function in an advisory capacity 

that has been performed by the Floor 

Directors Committee. Accordingly, the 

Trading Advisory Committee also will 

provide a mechanism for Trading Permit 

Holders to provide input on trading 

rules. 

(vi) Officers of CBOE 

The officers of CBOE will be a Chief 

Executive Officer, a Vice Chairman, a 

President, a Chief Financial Officer, one 

or more Vice-Presidents (the number 

thereof to be determined by the CBOE 

Board of Directors), a Secretary, a 

Treasurer, and such other officers as the 

Board may determine, including an 

Assistant Secretary and Assistant 

Treasurer.113 The CBOE Board by an 

affirmative vote of the majority of the 

Board will appoint the Chief Executive 

Officer of CBOE, who will have general 

charge and supervision of the business 

of CBOE.114 In general, the other officers 

of CBOE will have the duties or powers 

or both set out in the CBOE Bylaws, as 

well as such other duties or powers or 

both as the CBOE Board or the Chief 

Executive Officer may from time to time 

prescribe.115

These officers essentially will be the 

same as the current officers of the 

Exchange. For instance, the Exchange 

currently has a Chief Executive Officer, 

who also serves as Chairman of the Prior 

CBOE Board. After the Restructuring 

Transaction, the Chief Executive Officer 

may, but does not have to, be a director 

or the Chairman of the CBOE Board. The 

Exchange also currently has a Vice 

Chairman, although the current Vice 

Chairman is elected by the 

membership.116 After the Restructuring 

Transaction, the CBOE Board will select 

the Vice Chairman from among the 

Industry Directors serving on the CBOE 

Board.117 In addition, the Exchange 

currently has a Chief Financial Officer. 

This position, however, is not specified 

in the Constitution of the Exchange. 

After the Restructuring Transaction, this 

position will be formally incorporated 

into the CBOE Bylaws.118

The CBOE Bylaws would not restrict 

an officer from being a Trading Permit 

Holder or a person associated with a 

Trading Permit Holder, or a broker or a 

dealer in securities or commodities or 

an associated person of such broker or 

dealer. This is a change from the current 

Constitution of the Exchange, which 

restricts an officer from being a member 

or affiliated with a member or a broker 

or a dealer in securities or 

commodities.119 The Exchange is 

proposing this change because there are 

other protections in place that limit the 

potential conflicts between the 

Exchange as a self-regulator and Trading 

Permit Holders, including, among other 

things, the existence of a Regulatory 

Oversight Committee as a committee of 

the Board that consists solely of NonIndustry Directors. 

(vii) Self-Regulatory Function and 

Oversight 

As noted above, following the 

demutualization CBOE will continue to 

be registered as a national securities 

exchange under Section 6 of the 

Exchange Act and thus will continue to 

be an SRO.120 As an SRO, CBOE will be 

obligated to carry out its statutory 

responsibilities, including enforcing 

compliance by Trading Permit Holders 

with the provisions of the federal 

securities laws and the rules of CBOE. 

Further, CBOE will retain the 

responsibility to administer and enforce 

the rules that govern the activities of 

CBOE and its Trading Permit Holders. 

In addition, CBOE will continue to be 

required to file with the Commission, 

pursuant to Section 19(b) of the 

Exchange Act 121 and Rule 19b–4 

thereunder,122 any changes to its rules 

and governing documents. 

The proposed CBOE Certificate of 

Incorporation contains various 

provisions designed to protect the selfregulatory functions of CBOE in light of 

the new structure of the Exchange. For 

instance, the proposed CBOE Certificate 

of Incorporation contains a provision 

that requires each director of the CBOE 

Board to take into consideration the 

effect that his or her action would have 

on CBOE’s ability to carry out its 

responsibilities under the Exchange 

Act.123 The proposed CBOE Certificate 

of Incorporation also contains 

provisions designed to protect 

confidential information pertaining to 

the self-regulatory function of the 

Exchange.124

In addition, CBOE will interpret its 

Rules to require that any revenue it 

receives from regulatory fees or 

penalties will be applied to fund the 

legal, regulatory, and surveillance 

operations of the Exchange and will not 

be used to pay dividends to CBOE 

Holdings, except in the event of 

liquidation of CBOE, in which case 

CBOE Holdings will be entitled to the 

distribution of CBOE’s remaining assets. 

(viii) National Market System Plans 

CBOE currently is a participant in the 

following national market system 

(‘‘NMS’’) plans: the Options Price 

Reporting Authority Plan (‘‘OPRA 

Plan’’), the Consolidated Tape 

Association (‘‘CTA’’), the Consolidated 

Quotation Plan (‘‘CQ Plan’’), the Nasdaq 

Unlisted Trading Privileges Plan 

(‘‘Nasdaq UTP Plan’’), the Options 

Intermarket Linkage Plan, the Options 

Regulatory Surveillance Authority Plan 

(‘‘ORSA Plan’’), and the Options Listing 

Procedures Plan (‘‘OLPP’’). These plans 

are joint industry plans entered into by 


sroberts on PROD1PC77 with NOTICES
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 51663 

125See proposed CBOE Rule 1.1(ggg). 

126This change will cause a significant number of 

the Exchange’s rules to be amended. In connection 

with this rule filing, this change will be made in 

the rules in Chapters I–III, as well as CBOE Rule 

8.3. The Exchange also will make this change in its 

forms. Because of the length of this rule filing and 

the fact that the substantive changes to the 

Exchange’s rules regarding trading access are 

covered by this filing, the Exchange is proposing to 

submit a companion filing to change the term 

‘‘member’’ to ‘‘Trading Permit Holder’’ in the 

remainder of the Exchange’s rules, as well as to 

make certain conforming changes. Subject to 

Commission approval of this filing, the Exchange 

expects that this companion filing will be filed 

upon that approval. 

127See proposed Section 1.1(f) of the CBOE 

Bylaws and proposed CBOE Rule 1.1(gg). 

128 15 U.S.C. 78c(a)(3)(A). As described in Section 

(4)(B)(ii) above (Nomination and Election of 

Directors), the selection process for Representative 

Directors for the CBOE Board addresses the fair 

representation requirement for members in Section 

6(b)(3) of the Exchange Act. 15 U.S.C. 78f(b)(3). 

129See proposed Section 1.1(f) of the CBOE 

Bylaws and proposed CBOE Rule 1.1(gg). 

130See proposed CBOE Rule 3.1(a)(iii). 

131See proposed CBOE Rule 3.1(a)(iv). 

132 Id. 

133See proposed CBOE Rule 3.1(a)(v). 

134 15 U.S.C. 78s(b). 

135 15 U.S.C. 78s(b)(3)(A)(ii). 

136A ‘‘TPH organization’’ refers to an 

organization that holds a Trading Permit, and is the 

replacement term for ‘‘member organizations.’’ See 

proposed Section 1.1(f) of the CBOE Bylaws and 

proposed CBOE Rule 1.1(gg). 

137See proposed CBOE Rule 3.1(a)(vi). 

138 15 U.S.C. 78s(b). In addition, in no event will 

the Exchange act in a manner under this provision 

that does not comply with the provisions of Section 

6(c)(4) of the Act (15 U.S.C. 78(c)(4)). See proposed 

CBOE Rule 3.1(a)(vi). As noted in a letter submitted 

by the Exchange to the SEC in connection with SR–

CBOE–2006–106, CBOE has been unable to locate 

records that reflect with certainty the number of 

CBOE memberships on May 1, 1975. See Letter 

dated November 2, 2007 from Joanne Moffic-Silver, 

Executive Vice President, General Counsel and 

Corporate Secretary, CBOE, to Richard Holley III, 

Senior Special Counsel, Division of Market 

Regulation, SEC (http://www.sec.gov/comments/srcboe-2006-106/cboe2006106-161.pdf). The closest 

date to May 1, 1975 for which CBOE has been able 

to locate records that CBOE believes can be relied 

upon to establish this information is June 30, 1975. 

Specifically, CBOE has financial statements as of 

June 30, 1975, the end of its then fiscal year, which 

set forth this information as of that date. The 

number of CBOE memberships on June 30, 1975 

was 1,025. 

139See proposed CBOE Rule 3.1(a)(vii). 

SROs for the purpose of providing for (i) 

last sale and quotation reporting in 

options and equities, (ii) intermarket 

options trading, (iii) the joint 

surveillance, investigation and detection 

of insider trading on the options 

exchanges, and (iv) the listing of 

standardized options. Following the 

completion of the demutualization, 

CBOE, in its continuing role as the SRO, 

will continue to serve as the voting 

member of these NMS plans, and a 

representative of CBOE will continue to 

serve as CBOE’s representative with 

respect to dealing with these plans. 

(C) Trading Permits 

As part of the Restructuring 

Transaction, the rules of the Exchange 

will be amended to reflect the way in 

which trading access will be granted to 

the Exchange. Prior to the Restructuring 

Transaction, Exchange memberships 

provided trading access to the 

Exchange. After the Restructuring 

Transaction, Trading Permits will 

provide trading access to the Exchange. 

‘‘Trading Permits’’ are defined as 

licenses issued by the Exchange that 

grant the holders or the holders’

nominee the right to access the 

Exchange or one or more of its facilities 

for the purpose of effecting transactions 

in securities traded on the Exchange 

without the services of another person 

acting as broker, and otherwise to access 

the Exchange or its facilities for 

purposes of trading or reporting 

transactions or transmitting orders or 

quotations in securities traded on the 

Exchange, or to engage in other 

activities that, under the Rules, may 

only be engaged in by holders of 

Trading Permits, provided that the 

holder or the holder’s nominee, as 

applicable, satisfies any applicable 

qualification requirements to exercise 

those rights.125 A Trading Permit will 

not convey any ownership interest in 

the Exchange, will only be available 

through the Exchange, and will be 

subject to the terms and conditions set 

forth in proposed Rule 3.1. 

As a result of the new structure of the 

Exchange after the Restructuring 

Transaction in which ownership will be 

separated from trading access, the 

Exchange is proposing to replace the 

term ‘‘member’’ throughout the rules 

with the term ‘‘Trading Permit 

Holder.’’ 126 As indicated above, the 

term ‘‘Trading Permit Holder’’ will be 

defined as any individual, corporation, 

partnership, limited liability company 

or other entity authorized by the Rules 

that holds a Trading Permit.127 Holders 

of Trading Permits will meet the 

definition of ‘‘member’’ in Section 

3(a)(3)(A) of the Exchange Act.128 One’s 

status as a Trading Permit Holder, 

however, does not confer on that person 

any ownership interest in the 

Exchange.129 As members under the 

Exchange Act, Trading Permit Holders 

and their nominees will be subject to 

the regulatory jurisdiction of the 

Exchange, including without limitation 

the Exchange’s disciplinary jurisdiction 

under Chapter XVII of the Rules.130

(i) General Features of Trading Permits 

The Exchange will have the authority 

to issue different types of Trading 

Permits that allow holders to trade one 

or more products authorized for trading 

on the Exchange, and to act in one or 

more trading functions authorized by 

the Rules.131 Trading Permits will be for 

terms as shall be determined by the 

Exchange from time to time.132 It is 

currently anticipated that the Exchange 

will offer Trading Permits for terms of 

one month, three months and a year, 

although these terms may be changed in 

the future. Prior to the Restructuring 

Transaction, the Exchange will 

announce in a circular the types and 

terms of Trading Permits that the 

Exchange has determined to issue. 

Trading Permits will be subject to 

such fees and charges as are established 

by the Exchange from time to time 

pursuant to Rule 2.20 and the Exchange 

Fee Schedule.133 The Exchange will file 

proposed rule changes under Section 

19(b) of the Exchange Act,134 including, 

as applicable, Section 19(b)(3)(A)(ii),135

to establish and change the fees for the 

types of Trading Permits it has 

determined to issue. The entire fee for 

a Trading Permit will be due and 

payable in accordance with the 

Exchange Fee Schedule. A TPH 

organization holding a Trading Permit 

will be responsible for paying all fees 

and charges for that Trading Permit.136

In addition, an individual holding a 

Trading Permit will be responsible for 

paying all fees and charges for that 

Trading Permit. 

The Exchange will have the authority 

to limit or reduce the number of any 

type of Trading Permit it has 

determined to issue.137 Notwithstanding 

this general authority, in the event the 

Exchange imposes such a limitation or 

reduction, the Exchange will be 

prohibited from eliminating or reducing 

the ability to trade one or more 

product(s) of a person currently trading 

such product(s), and will be prohibited 

from eliminating or reducing the ability 

to act in one or more trading function(s) 

of a person currently acting in such 

trading function(s), unless the Exchange 

is permitted to do so pursuant to a rule 

filing submitted to Commission under 

Section 19(b) of the Exchange Act.138

The Exchange will announce in a 

circular any limitation or reduction in 

the number of Trading Permits it 

determines to impose. 

The Exchange also will have the 

authority to increase the number of any 

type of Trading Permit it has 

determined to issue by issuing 

additional Trading Permits of that type, 

and will announce in a circular any 

such increase.139 In addition, the 

Exchange will have the authority, 

pursuant to a rule filing submitted to the 


sroberts on PROD1PC77 with NOTICES
51664 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

140 15 U.S.C. 78s(b). 

141See proposed CBOE Rule 3.1(a)(viii). The 

Exchange also has included a savings clause in Rule 

3.1 that provides that notwithstanding Rule 3.1, as 

well as Rule 3.1A (which addresses the issuance of 

Trading Permits to current members), nothing in 

those rules will eliminate or restrict the Exchange’s 

authority to delist any product or to take any action 

(remedial or otherwise) under the Exchange Act, the 

Bylaws and the Rules, including without limitation 

the Exchange’s authority to take disciplinary or 

market performance actions against a person with 

respect to which the Exchange has jurisdiction 

under the Exchange Act, the Bylaws and the Rules. 

See proposed CBOE Rule 3.1(a)(ix). 

142See proposed CBOE Rule 3.1(d)(i). 

143See proposed CBOE Rule 3.1(d)(ii). 

144 Id. 

145See proposed CBOE Rule 3.1A(a). 

146Holders of CBSX trading permits and holders 

of Interim Trading Permits will be issued Trading 

Permits pursuant to this provision. CBOE Rule 3.26, 

which currently provides for the issuance of CBSX 

trading permits, will be deleted as part of this rule 

filing because all Trading Permits after the 

Restructuring Transaction will be issued under 

proposed CBOE Rule 3.1. For the same reason, 

CBOE Rule 3.27, which currently provides for the 

issuance of Interim Trading Permits, also will be 

deleted as part of this rule filing. 

147A person who was eligible to receive Trading 

Permit(s) pursuant to this provision but who failed 

to comply with the application or other 

requirements, must submit an application for a 

Trading Permit as described below and must go 

through the approval process to hold a Trading 

Permit to be eligible to receive a Trading Permit. 

See proposed CBOE Rule 3.1A(c). 

148This guarantee is subject to the provision 

noted above that provides that notwithstanding 

Rule 3.1, as well as Rule 3.1A, nothing in those 

rules will eliminate or restrict the Exchange’s 

authority to delist any product or to take any action 

(remedial or otherwise) under the Exchange Act, the 

Bylaws and the Rules, including without limitation 

the Exchange’s authority to take disciplinary or 

market performance actions against a person with 

respect to which the Exchange has jurisdiction 

under the Exchange Act, the Bylaws and the Rules. 

See proposed CBOE Rule 3.1(a)(ix). In addition, this 

guarantee is subject to the continuing satisfaction of 

any applicable qualification requirements, as well 

as to the Exchange’s ability discussed above to limit 

or reduce the number of any type of Trading Permit 

pursuant to a rule filing with the Commission. See 

proposed CBOE Rules 3.1A(a) and 3.1(a)(vi). 

149See proposed CBOE Rule 3.1(b)(i). The 

Exchange is not proposing to substantively change 

the current process to become a ‘‘member’’ of the 

Exchange, which after the Restructuring 

Transaction will be the process to become a 

‘‘Trading Permit Holder.’’ See, e.g., CBOE Rule 3.9. 

150 Id. 

151See proposed CBOE Rule 3.1(b)(iii). The 

Exchange also will have the authority to modify 

these processes or to establish any other objective 

process to issue Trading Permits pursuant to a rule 

filing submitted to the Commission under Section 

19(b) of the Act. 15 U.S.C. 78s(b). 

152 Id. 

Commission under Section 19(b) of the 

Act,140 to establish objective standards 

that must be met to be issued, or to have 

renewed, a Trading Permit.141

Trading Permits will only be issued 

by the Exchange and cannot be leased 

or transferred to any person under any 

circumstances, except in the following 

situations.142 In this regard, a TPH 

organization may change the 

designation of the nominee in respect of 

each Trading Permit it holds in a form 

and manner prescribed by the 

Exchange.143 In addition, a Trading 

Permit Holder may, with the prior 

written consent of the Exchange, 

transfer a Trading Permit to a TPH 

organization or to an organization 

approved to be a TPH organization: (A) 

Which is an affiliate; or (B) which 

continues substantially the same 

business without regard to the form of 

the transaction used to achieve such 

continuation, e.g., merger, sale of 

substantially all assets, reincorporation, 

reorganization or the like.144 For 

example, this provision would allow the 

Exchange to approve a transfer of a 

Trading Permit from an individual or 

TPH organization to an affiliated TPH 

organization of that individual or TPH 

organization. 

(ii) Issuance of Trading Permits 

In connection with the Restructuring 

Transaction, Trading Permits will be 

issued automatically to each current 

member of the Exchange that has the 

ability to trade. In this regard, prior to 

the date of the Restructuring 

Transaction, a person who is, or is 

treated the same as, a ‘‘member’’ of the 

Exchange under Sections 1.1 and 2.1 of 

the Constitution of the Exchange may 

submit a post-Restructuring Transaction 

trading application to the Exchange in 

accordance with such procedures as 

shall be established by the Exchange.145

Provided the applicant is in good 

standing as of the date of the 

Restructuring Transaction, complies 

with the application procedures 

established by the Exchange and pays 

any applicable fees, the Exchange in 

connection with the Restructuring 

Transaction will issue to the applicant, 

as applicable, a Trading Permit in 

respect of: (A) Each membership not 

subject to an effective lease as of the 

date of the Restructuring Transaction 

that is owned by the applicant; (B) each 

membership that is leased as a lessee by 

the applicant as of the date of the 

Restructuring Transaction; (C) each 

trading permit issued by the Exchange 

prior to the Restructuring Transaction 

that is held by the applicant, provided 

that in the case of a CBSX trading 

permit, the Exchange shall issue a 

Trading Permit in respect of the CBSX 

trading permit that only provides the 

right to effect transactions on the 

CBSX; 146 and (D) each Temporary 

Membership that is held by such 

applicant.147 As the foregoing indicates, 

persons who are Temporary Members 

under Interpretation and Policy .02 of 

CBOE Rule 3.19 will be guaranteed 

Trading Permits in connection with the 

Restructuring Transaction, provided 

they comply with the requirements 

noted above. In addition, persons who 

are issued Trading Permits as set forth 

above will have the ability pursuant to 

those Trading Permits to continue after 

the Restructuring Transaction trading 

any product, and acting in any trading 

function, that those persons traded, or 

acted in, at the time of the Restructuring 

Transaction.148

At the time of Restructuring 

Transaction and afterwards, Trading 

Permits also will be issued after an 

application process. Persons who are 

seeking trading access to the Exchange 

for the first time, as well as current 

Trading Permit Holders seeking to hold 

additional Trading Permits, would need 

to go through this application process. 

Only a person approved to hold a 

Trading Permit (a ‘‘Qualified Person’’) is 

eligible to submit an application for a 

Trading Permit.149

We expect that this application 

process will be a simple process that 

generally will involve notifying the 

Exchange of the type, term and number 

of Trading Permits that a Qualified 

Person would like to receive.150 To be 

eligible to be issued a type of Trading 

Permit, a Qualified Person must have 

satisfied the application requirements 

for that type of Trading Permit. In 

addition, to be eligible to use a type of 

Trading Permit, a Qualified Person must 

satisfy all requirements related to that 

type of Trading Permit. 

From time to time, the Exchange in its 

discretion may determine to make 

available one or more of a type of 

Trading Permit through (i) a process in 

which Trading Permits will be issued to 

Qualified Persons by a random lottery 

(‘‘Random Lottery Process’’), or (ii) a 

process in which Trading Permits will 

be issued to Qualified Persons based on 

the order in time that such Qualified 

Persons applied for such Trading 

Permits (‘‘Order in Time Process’’).151

The number of Trading Permits that the 

Exchange determines to make available 

is referred to as the ‘‘issuance number.’’

In connection with an issuance of such 

Trading Permits, and notwithstanding 

an application for a greater number of 

such Trading Permits, a Qualified 

Person and any affiliated Qualified 

Person will be eligible to receive no 

more than the greater of 10 such Trading 

Permits or 20% of the issuance number 

of such Trading Permits. 

This limit, however, will not apply in 

the event the issuance number of such 

Trading Permits exceeds the demand for 

such Trading Permits.152 In such a 

situation, Trading Permits will be made 


sroberts on PROD1PC77 with NOTICES
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 51665 

153 Id. 

154See proposed CBOE Rule 3.1(b)(ii). 

155See proposed CBOE Rule 3.1(c)(i). 

156See proposed CBOE Rule 3.1(c)(ii). 

157See proposed CBOE Rule 3.1(c)(iii). This 

automatic renewal provision will not limit the 

Exchange’s authority to limit or reduce the number 

of any type of Trading Permit. 

158 Id. To the extent the Exchange determines to 

issue one or more Trading Permits that represent 

the same or more trading right(s) as an expiring 

Trading Permit, the Exchange will provide all 

holders of that type of expiring Trading Permit with 

the new Trading Permit(s). 

159See proposed CBOE Rule 3.1(c)(iv). 

160See proposed CBOE Rule 3.1(c)(v). 

161See proposed CBOE Rule 8.3(e). 

162See proposed CBOE 3.1A(b). 

163See proposed CBOE Rule 8.3(e). 

164 15 U.S.C. 78s(b). 

165 15 U.S.C. 78s(b)(3)(A)(ii). 

available through the Order in Time 

Process. Qualified Persons applying for 

Trading Permits in this situation will be 

automatically issued such permits until 

the number of permits issued equals the 

issuance number. 

In the event the demand for Trading 

Permits exceeds the issuance number, 

Trading Permits will be made available 

through the Random Lottery Process or 

the Order in Time Process.153 In such a 

situation, the Exchange in its discretion 

may maintain a waiting list to be used 

to issue Trading Permits pursuant to the 

Order in Time Process.154 If the 

Exchange maintains a waiting list, 

Qualified Persons will be placed on that 

waiting list based on the order in time 

that such persons submitted 

applications, and such persons may at 

any time voluntarily withdraw from that 

waiting list. A person on the waiting list 

also may submit a notification to the 

Exchange to adjust the number of 

Trading Permits that such person would 

like to receive at any time prior to an 

announcement of an issuance of such 

Trading Permits. Persons on the waiting 

list will be issued Trading Permits based 

on the order in time they were placed 

on the waiting list. 

(iii) Termination, Change and Renewal 

of Trading Permits. 

A Trading Permit Holder seeking to 

terminate that holder’s Trading Permit 

must notify the Exchange, prior to the 

deadline announced by the Exchange in 

a circular and in a form and manner 

prescribed by the Exchange, that the 

holder is terminating that Trading 

Permit at the end of its term.155 In 

addition, a Trading Permit Holder 

seeking to replace that holder’s Trading 

Permit with a different Trading Permit 

must file with the Exchange, prior to the 

deadline announced by the Exchange in 

a circular, an application for that 

different Trading Permit pursuant to the 

application process described above.156

In the event a Trading Permit Holder 

does not take either of the foregoing 

actions with respect to a Trading Permit, 

the Exchange will automatically renew 

that Trading Permit for the same term as 

the expiring term.157 In renewing that 

Trading Permit, the Exchange will have 

the authority to issue one or more 

Trading Permits that represent the same 

or more trading right(s) as the expiring 

permit.158

In addition, a Trading Permit Holder 

seeking to hold an additional Trading 

Permit must file with the Exchange an 

application for that Trading Permit 

pursuant to the application process 

described above.159 To change the term 

of a Trading Permit at the end of its 

current term to a longer or shorter term 

currently offered by the Exchange, a 

Trading Permit Holder must notify the 

Exchange of that holder’s desire to 

change the term prior to the deadline 

announced by the Exchange in a 

circular and in a form and manner 

prescribed by the Exchange.160 Such a 

change will be effective only at the end 

of the current term of the Trading 

Permit. 

(iv) Tier Appointments 

The Exchange is proposing to amend 

CBOE Rule 8.3 to provide for a new type 

of appointment called a ‘‘tier 

appointment.’’ A ‘‘tier appointment’’ is 

an appointment to trade one or more 

options classes that must be held by a 

Market-Maker to be eligible to trade the 

options class or options classes subject 

to that appointment.161 A Market-Maker 

that seeks to trade an options class or 

options classes subject to a tier 

appointment must submit an 

application for that tier appointment in 

accordance with, and subject to the 

same terms and conditions as, the 

application process for Trading Permits 

as described above. Notwithstanding 

this application requirement, in the 

event a current member of the Exchange 

at the time of the Restructuring 

Transaction is trading an options class 

with respect to which the Exchange is 

establishing a tier appointment, the 

Exchange in connection with the 

Restructuring Transaction will issue to 

that member such a tier appointment 

provided that the Exchange is notified 

by that member of that member’s desire 

to hold such a tier appointment.162

Tier appointments will be in addition 

to the current appointment cost process 

set forth in CBOE Rule 8.3, which will 

remain unchanged in connection with 

the Restructuring Transaction. In 

general, under that process, the number 

of memberships owned or leased by a 

Market-Maker serves as the basis for 

determining the number/types of 

options classes that the Market-Maker 

can trade. In this regard, each 

membership held by a Market-Maker 

has an appointment credit of 1.0, and 

each option listed on the Exchange has 

an assigned appointment cost. Under 

that process, for example, a MarketMaker with one membership could 

trade options on the Nasdaq 100 Index, 

which has an appointment cost of .50, 

and options on the CBOE Volatility 

Index, which also has an appointment 

cost of .50. 

Issuance of tier appointments will be 

in accordance with, and subject to the 

same terms and conditions as, the 

issuance processes for Trading Permits 

as described above (i.e., the Random 

Lottery Process or the Order in Time 

Process).163 A Market-Maker that is 

issued a tier appointment must 

designate to the Exchange the Trading 

Permit with which that tier appointment 

is associated, and may designate no 

more than one tier appointment per 

Trading Permit. A tier appointment will 

be for the same term as the Trading 

Permit with which the tier appointment 

is associated. Termination, change, 

renewal, and transfer of tier 

appointments will be in accordance 

with, and subject to the same terms and 

conditions as, the processes for Trading 

Permits as described above. In this 

regard, for example, if a holder of tier 

appointment does not notify the 

Exchange that the holder is terminating 

that tier appointment and does not file 

an application to replace that tier 

appointment, that tier appointment will 

be renewed along with its associated 

Trading Permit for the same term as the 

expiring term of that Trading Permit. 

Tier appointments will be subject to 

such fees and charges as are established 

by the Exchange from time to time 

pursuant to Rule 2.20 and the Exchange 

Fee Schedule. The Exchange will file 

proposed rule changes under Section 

19(b) of the Exchange Act,164 including, 

as applicable, Section 19(b)(3)(A)(ii),165

to establish and change the fees for tier 

appointments. In accordance with, and 

subject to same terms and conditions as, 

the processes for Trading Permits as 

described above, the Exchange will have 

the authority with respect to any type of 

tier appointment it has determined to 

establish to limit or reduce the number 

of that type of tier appointment, to 

increase the number of that type of tier 

appointment, and to establish objective 

standards to be issued, or to have 


sroberts on PROD1PC77 with NOTICES
51666 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

166The Exchange also has included a savings 

clause in proposed Rule 8.3 that provides that 

notwithstanding the rule, nothing in it will 

eliminate or restrict the Exchange’s authority to 

delist any product or to take any action (remedial 

or otherwise) under the Exchange Act, the Bylaws 

and the Rules, including without limitation the 

Exchange’s authority to take disciplinary or market 

performance actions against a person with respect 

to which the Exchange has jurisdiction under the 

Exchange Act, the Bylaws and the Rules. Id. 

167References to these terms also will be replaced 

in Chapters II and III and CBOE Rule 8.3 as part 

of this rule filing, and in the remaining rules as part 

of the companion filing noted above. 

168 In this regard, any change to a defined term 

in Chapter I will be reflected in Chapters II and III 

and CBOE Rule 8.3 as part of this rule filing, and 

in the remaining rules as part of the companion 

filing noted above. 

169See proposed CBOE Rules 1.1(ff) and (gg). 

170See supra note 3. 

171See proposed CBOE Rule 1.1(iii) for the 

definition of TPH Department. 

172See proposed CBOE Rule 1.1(h). 

173See proposed CBOE Rule 1.1(jj). 

renewed, that type of tier 

appointment.166

(D) Other Changes to the Rules 

(i) Chapter I of the Rules 

As mentioned above, the Exchange is 

proposing to replace the term ‘‘member’’

with ‘‘Trading Permit Holder’’

throughout the Exchange’s rules. Thus, 

references to the terms member and 

membership in Chapters I will be 

replaced.167 For instance, in Rule 1.1(f) 

and throughout the rules, the term 

‘‘Clearing Member’’ will be replaced 

with ‘‘Clearing Trading Permit 

Holder.’’ 168

In addition, the Exchange has 

amended the definitions in Chapter I to 

reflect the use of Trading Permits. In 

this regard, for instance, the terms 

‘‘Lessor’’ and ‘‘Lessee’’ have been 

deleted because these concepts will not 

exist after the Restructuring 

Transaction. In their place, the 

Exchange has added the definitions of 

‘‘person’’ and ‘‘Trading Permit 

Holder.’’ 169 A person is defined as an 

individual, partnership (general or 

limited), joint stock company, 

corporation, limited liability company, 

trust or unincorporated organization, or 

any governmental entity or agency or 

political subdivision thereof, and a 

Trading Permit Holder is defined by 

reference to the definition of that term 

in Section 1.1 of the CBOE Bylaws. The 

Exchange also has added a definition of 

‘‘Restructuring Transaction’’ to reflect 

the point in time at which Trading 

Permits will be issued.170

Further, the Exchange has added a 

definition of ‘‘Trading Permit,’’ which is 

discussed above, and a definition of 

‘‘TPH Department.’’ 171 The TPH 

Department is defined as the 

department or division of the Exchange 

(which may be referred to by the 

Exchange from time to time by a name 

other than the TPH Department) that has 

the functions set forth in the rules for 

the TPH Department. The TPH 

Department will serve as the successor 

to the current Membership Department 

and will continue the functions of that 

department, such as processing 

applications for Trading Permits 

(instead of applications for 

membership). The definition is drafted 

in this manner to give the Exchange the 

flexibility to call the department 

something other than the TPH 

Department in the future without having 

the amend the rules. 

The Exchange also has made technical 

changes to certain definitions in Chapter 

I that do not change the substance of 

these definitions. For example, the 

Exchange has amended the term 

‘‘Executive Officer’’ to clarify that the 

term refers to an executive officer of a 

TPH organization.172 In addition, the 

Exchange has amended the definition of 

‘‘Good Standing’’ to provide that the 

term means ‘‘that a Trading Permit 

Holder or associated person is not 

delinquent respecting Exchange fees or 

other charges and is not suspended or 

barred from being a Trading Permit 

Holder or from being associated with a 

Trading Permit Holder.’’ 173

(ii) Chapter II of the Rules 

CBOE Rule 2.1(a) will be amended to 

limit its scope to Exchange committees 

(i.e., committees that are not solely 

composed of CBOE Board directors) and 

to modify the manner of appointment to 

such committees. Prior to the 

Restructuring Transaction, the Rules 

generally provided that except as may 

be otherwise provided in the 

Constitution or the rules, the Vice 

Chairman of the Board, with the 

approval of the CBOE Board, would 

appoint the chairmen and members of 

committees (other than the Business 

Conduct Committee) to serve for terms 

expiring at the first regular meeting of 

the Board of Directors of the next 

calendar year. After the Restructuring 

Transaction, the Rules will be amended 

to provide that the Vice Chairman of the 

Board, with the approval of the CBOE 

Board, will appoint the chairmen and 

members of Exchange committees (other 

than the Business Conduct Committee), 

with the exception that if a different 

manner of appointment is specified for 

any specific committee under the CBOE 

Bylaws, the rules or a resolution of the 

CBOE Board establishing that 

committee, that different manner of 

appointment will be followed. After the 

Restructuring Transaction, the 

President, with approval of the Board, 

will continue to have the authority to 

appoint members of the Business 

Conduct Committee. 

CBOE Rule 2.1(a) also has been 

amended to streamline the process for 

filling vacancies. In this regard, the Vice 

Chairman of the Board, with the 

approval of the CBOE Board, would fill 

vacancies on Exchange committees 

(other than the Business Conduct 

Committee), unless a different process is 

specified for any specific committee 

under the CBOE Bylaws, the Rules or a 

resolution of the CBOE Board 

establishing that committee. Similarly, 

the President, with approval of the 

CBOE Board, would fill vacancies on 

the Business Conduct Committee. 

CBOE Rule 2.1(b) has been amended 

to provide a definition of quorum for 

committee meetings. In this regard, 

absent a different provision in the CBOE 

Bylaws, the Rules, a committee charter 

or a CBOE Board resolution related to a 

specific committee, a majority of 

members of a committee shall constitute 

a quorum. This is consistent with 

current Exchange practice for 

determining a quorum for committee 

meetings. This rule also has been 

amended to delete the reference to 

‘‘informally’’ in the last sentence so that 

it now provides that ‘‘[c]ommittees may 

act by written consent of all of the 

members of the committee.’’ This 

change was made because committees 

can take all types of actions pursuant to 

written consent, and not just ‘‘informal’’

actions. 

Further, CBOE Rules 2.1(d) and 2.2 

have been amended to clarify certain 

aspects of the authority of the CBOE 

Board. With regard to CBOE Rule 2.1(d), 

the Exchange is proposing to clarify in 

the first sentence of that provision that 

each committee will have such other 

powers and duties as may be delegated 

to it by the CBOE Board in a committee 

charter or otherwise. The Exchange also 

is proposing to move the second 

sentence of that provision into a new 

paragraph (e) of CBOE Rule 2.1 and to 

modify that sentence so that it provides 

that each Exchange committee is subject 

to the control and supervision of the 

CBOE Board. The Exchange is limiting 

this provision to Exchange committees 

because the CBOE Board’s relationship 

to CBOE Board committees is governed 

by specific delegations of authority 

under the CBOE Bylaws, applicable 

committee charters and Delaware law. 

With regard to CBOE Rule 2.2, the 

Exchange is clarifying that the CBOE 

Board has the authority to review, 

modify, suspend or overrule any and all 

actions (or inactions) of any committee, 

officer, representative or designee of the 


sroberts on PROD1PC77 with NOTICES
Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 51667 

174This change also has been made to other rules 

in Chapters I–III. See, e.g., CBOE Rule 1.1(jj). 

175 In this regard, CBOE Rules 3.12, 3.13, 3.14, 

3.15, 3.24 and 3.25 will be deleted. One of the rules 

to be deleted, Rule 3.14(d), describes the rights of 

membership owners and grantees in Authorization 

to Sell arrangements. Persons in these arrangements 

should be aware that the Authorization to Sell 

process will terminate in connection with the 

Restructuring Transaction and that the Exchange 

will no longer have any involvement in these 

arrangements. In addition, persons in these 

arrangements should consider the impact, if any, 

the Restructuring Transaction (i.e., the conversion 

of memberships into Class A common stock in 

CBOE Holdings) might have on the collateral in 

these arrangements. 

176See, e.g., CBOE Rules 3.2 and 3.3. 177See CBOE Rule 3.8(a). 178The Exchange also is making this change to 

other rules in Chapters I–III and to CBOE Rule 8.3 

as part of this rule filing, and in the remaining rules 

as part of the companion filing noted above. 

179See CBOE Rule 3.9(e). 

180The Exchange also is making this change to 

other rules in Chapters I–III as part of this rule 

filing, and in the remaining rules as part of the 

companion filing noted above. CBOE Rule 8.3 is not 

affected by this change. 

181 15 U.S.C. 78f(b). 

182 15 U.S.C. 78f(b)(1). 

Exchange taken (or not taken) pursuant 

to the rules; provided that the CBOE 

Board acts in accordance with any 

review procedures set forth in Chapters 

XVII, XVIII and XIX of the Rules, to the 

extent applicable to actions (or 

inactions) under those Chapters. The 

Exchange is making this change to 

CBOE Rule 2.2 to clarify that consistent 

with the general rule under Delaware 

law, the CBOE Board has the authority 

to review actions taken (or actions not 

taken) by committees, officers, 

representatives and designees of the 

Exchange pursuant to the rules. At the 

same time, the Exchange has included 

language that provides that the 

processes related to CBOE Board review 

(if any) set forth in Chapters XVII, XVIII 

and XIX of the rules will be followed. 

In other words, to the extent a particular 

process is not set forth in the rules (such 

as the ones in Chapters XVII, XVIII and 

XIX), the CBOE Board will have the 

authority to review actions taken (or 

actions not taken) pursuant to the rules 

by committees, officers, representative 

and designees of the Exchange. 

Finally, conforming changes have 

been made to the rules in Chapter II to 

reflect the use of Trading Permits. For 

instance, CBOE Rule 2.23 has been 

amended to clarify that the Exchange 

will have the authority to suspend or 

revoke a Trading Permit in the event the 

holder of that permit does not pay any 

amounts due to the Exchange. In 

addition, references to the term ‘‘dues’’

have been deleted in CBOE Rules 2.20, 

2.22 and 2.23 because this term 

generally refers to payments made by 

members in a membership 

organization.174

(iii) Chapter III of the Rules 

Conforming changes throughout 

Chapter III will be made to reflect the 

operation of Trading Permits. For 

example, the Rules relating to the sale, 

transfer and lease of memberships, and 

to the member death benefit will be 

deleted based on the operation of 

Trading Permits.175 In addition, CBOE 

Rule 3.1 will be deleted and replaced 

with a new Rule 3.1 (discussed above) 

that addresses Trading Permits. The 

prior version of Rule 3.1 was designed 

to, among other things, ensure that 

memberships were used for trading on 

the Exchange. This requirement will no 

longer be necessary in connection with 

the use of Trading Permits. 

The qualifications to be a member or 

member organization, and the 

application process to become a 

member, will be the same after the 

Restructuring Transaction with 

modifications to reflect the use of 

Trading Permits.176 For example, the 

Exchange is proposing to amend CBOE 

Rule 3.3 to condense the description of 

the requirements that an organization 

must meet to become a TPH 

organization, but is not substantively 

changing these requirements. 

The Exchange also is making 

technical changes to certain rules in 

Chapter III that do not change the 

substance of these rules. For instance, 

the Exchange is proposing to amend 

Rule 3.5 to clarify that the Exchange 

will have the authority to deny or 

condition persons from becoming or 

being associated with Trading Permit 

Holders under the circumstances that 

are already set forth in that rule. In 

addition, the Exchange is making 

similar changes to CBOE Rule 3.18 to 

clarify the Exchange’s authority when a 

Trading Permit Holder or a person 

associated with a Trading Permit Holder 

becomes subject to a statutory 

disqualification. Further, the Exchange 

is amending CBOE Rule 3.10 to clarify 

when Trading Permit Holder status will 

become effective, and is amending 

CBOE Rule 3.11 to clarify that the 

Exchange will announce such 

effectiveness in the Exchange Bulletin. 

In addition, because an individual 

will be able to hold a Trading Permit in 

his or her name, the process for 

designating nominees for Trading 

Permits in CBOE Rule 3.8 will be 

amended to require a TPH organization 

that has an associated person who is an 

individual holder of a Trading Permit to 

designate that individual as the 

nominee for that Trading Permit.177

Moreover, references to the concept of 

registering a membership for a member 

organization will be deleted in Rule 3.8 

because that concept will have no 

application once Trading Permits are 

used to provide trading access to the 

Exchange.178 Further, the Exchange is 

streamlining the process of designating 

nominees for TPH organizations that 

have multiple Trading Permits in their 

name. Currently, a member organization 

that has multiple memberships in its 

name can designate the same individual 

to be the nominee for those 

memberships, except that for each 

membership used for trading in open 

outcry on the trading floor, the member 

organization must designate a different 

individual to be the nominee for each of 

those memberships. As modified, CBOE 

Rule 3.8(a)(ii) will allow TPH 

organizations to designate the same 

individual to be the nominee for 

Trading Permits held in its name, 

including Trading Permits used for 

trading in open outcry on the trading 

floor. 

The Exchange also is deleting the 

requirement in CBOE Rule 3.7(g) that a 

member keep and maintain a current 

copy of the Constitution and rules in a 

readily accessible place, and that a 

member organization that is approved to 

do business with the public make the 

Constitution and rules available for 

examination by customers. Because the 

Exchange is required to maintain a copy 

of its governing documents and rules 

online, the Exchange believes that this 

requirement is no longer necessary. 

Finally, the Exchange is amending 

CBOE Rule 3.9 to, among other things, 

delete the requirement that the 

Exchange post notices of applications 

on the Exchange Bulletin Board.179 As 

trading on the Exchange becomes more 

electronic and remote from the 

Exchange, the use of a physical bulletin 

board at the Exchange to notify persons 

is outdated.180 Despite this change, 

persons will still receive notice of 

applications because the Exchange will 

continue to be required to post them in 

the Exchange Bulletin. 

Statutory Basis 

For the reasons set forth above, the 

Exchange believes that this filing is 

consistent with Section 6(b) of the 

Exchange Act,181 in general, and 

furthers the objectives of Section 6(b)(1) 

of the Exchange Act,182 in particular, in 

that it enables the Exchange to be so 

organized as to have the capacity to be 

able to carry out the purposes of the 

Exchange Act and to comply, and to 

enforce compliance by its Exchange 

members and persons associated with 

its Exchange members, with the 


sroberts on PROD1PC77 with NOTICES
51668 Federal Register / Vol. 73, No. 172 / Thursday, September 4, 2008 / Notices 

183 15 U.S.C. 78f(b)(5). 

184 15 U.S.C. 78f(b)(3). 

185The Commission notes that the Exchange has 

consented to an extension of time for Commission 

consideration of the proposed rule change. See Item 

6 of CBOE’s Form 19b–4 submission. 

186 17 CFR 200.30–3(a)(12). 

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

2 2 17 CFR 240.19b–4. 

provisions of the Exchange Act, the 

rules and regulations thereunder, and 

the rules of the Exchange. The Exchange 

also believes that this filing furthers the 

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

Exchange Act because the rules 

summarized herein would create a 

governance and regulatory structure that 

is designed to prevent fraudulent and 

manipulative acts and practices, 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.183

Among other things, the Certificate of 

Incorporation and Bylaws of CBOE 

Holdings and CBOE are designed to 

protect and maintain the integrity of the 

SRO functions of CBOE, and to allow it 

to carry out its regulatory 

responsibilities under the Exchange Act. 

In addition, the Exchange believes 

that this filing is consistent with the 

requirements of Section 6(b)(3) of the 

Exchange Act that the rules of the 

exchange assure a fair representation of 

its members in the selection of its 

directors and administration of its 

affairs and provide that one or more 

directors shall be representative of 

issuers and investors and not be 

associated with a member of the 

exchange, broker, or dealer.184 As 

described above, the CBOE Bylaws 

provide a process for Trading Permit 

Holders to select members of the CBOE 

Board (i.e., Representative Directors). 

The CBOE Bylaws also require that a 

majority of directors on the CBOE Board 

be Non-Industry Directors. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE does not believe that the 

proposed rule change will impose any 

burden on competition that is 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 

No written comments were solicited 

or received with respect to 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,185 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. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–CBOE–2008–88 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2008–88. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of the CBOE. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2008–88 and should 

be submitted on or before September 25, 

2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.186

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–20464 Filed 9–3–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58428; File No. SR–CBOE–

2008–86] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Voluntary 

Professional Transaction Fees 

August 27, 2008. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on August 

19, 2008, the Chicago Board Options 

Exchange, Incorporated (‘‘CBOE’’ or the 

‘‘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 CBOE. 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 

CBOE is proposing to amend its fees 

schedule for certain non-broker-dealer 

orders. The text of the proposed rule 

change is available on the Exchange’s 

Web site (http://www.cboe.org/legal), at 

the Exchange’s Office of the Secretary 

and at the Commission’s Public 

Reference Room. 

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 

CBOE included statements concerning 

the purpose of, and basis for, the 


sroberts on PROD1PC77 with NOTICES