Document ID: SEC-2006-0272-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc.
Posted Date: 2006-03-02T05:00Z

[Federal Register: March 2, 2006 (Volume 71, Number 41)]
[Notices]               
[Page 10732-10734]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02mr06-105]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53355; File No. SR-CBOE-2005-105]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change Relating to the 
Membership Rules for Foreign Member Organizations

February 23, 2006.

I. Introduction

    On December 7, 2005, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission''), pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend CBOE Rule 3.4, 
``Qualifications of Foreign Member Organizations,'' to provide that a 
member organization that is not organized under the laws of one of the 
states of the United States (a ``foreign member organization''), and 
that is approved by the Exchange to act solely as a lessor, need not 
register as a broker or dealer pursuant to section 15 of the Act.\3\ 
The proposed rule change was published for comment in the

[[Page 10733]]

Federal Register on January 18, 2006.\4\ The Commission received no 
comments regarding the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78o.
    \4\ Securities Exchange Act Release No. 53092 (January 10, 
2006), 71 FR 2963 (``Notice''). The Commission published an amended 
Notice to indicate that the correct date of the Notice is January 
10, 2006, rather than January 10, 2005. See Securities Exchange Act 
Release No. 53092A (January 19, 2006), 71 FR 4391 (January 26, 
2006).
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II. Description of the Proposal

    An organization that is not organized under the laws of one of the 
states of the United States (``foreign member organization''), among 
other things, must satisfy the requirements in CBOE Rule 3.4 in order 
to become a CBOE member. Under CBOE Rule 3.4, a foreign member 
organization that is approved by the Exchange to act solely as a lessor 
must be registered as a broker-dealer pursuant to section 15 of the Act 
\5\ and must maintain in English at a location in the United States any 
books and records that an organization registered as a broker-dealer is 
required to maintain at a location in the United States.\6\ In 
contrast, CBOE Rule 3.3(a)(ii) exempts a U.S. member organization, if 
it is approved to act solely as a lessor, from the requirement in CBOE 
Rule 3.3 that such an organization be registered as a broker-dealer 
under section 15 of the Act.
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    \5\ See CBOE Rule 3.4(a)(xii).
    \6\ See CBOE Rule 3.4(a)(iii)(B).
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    The Exchange proposes to amend CBOE Rule 3.4 to exempt a foreign 
member organization that is approved by the Exchange to act solely as a 
lessor from certain requirements set forth in the rule. In particular, 
the Exchange proposes to exempt such a foreign member organization 
from: (i) CBOE Rule 3.4(a)(xii), which requires a foreign member 
organization to be registered as a broker or dealer pursuant to section 
15 of the Act; and (ii) CBOE Rule 3.4(a)(iii)(B), which requires a 
foreign member organization to maintain, in English and at a location 
in the United States, any books and records of the foreign member 
organization that an organization registered as a broker or dealer 
pursuant to section 15 of the Act is required to maintain.
    According to CBOE, a member organization approved to act solely as 
a lessor has no trading functions on the Exchange, and the sole 
business function of such a member is to lease its CBOE membership to 
another CBOE member. CBOE represents that, since a foreign member 
organization approved to act solely as a lessor conducts no activities 
on the Exchange that otherwise would require it to register as a 
broker-dealer, it is appropriate not to require such registration. The 
Exchange also asserts that, if the only activities conducted by the 
foreign member organization on the Exchange relate to its lease 
activities, the provisions set forth in Rule 3.4(a)(iii)(A), which 
require the foreign member organization to maintain in English and at a 
location in the United States the books and records of the organization 
that relate to its business on the Exchange, should ensure that the 
Exchange will have the ability to have access to adequate information 
with respect to the foreign member organization.
    The Exchange notes that a foreign member organization approved to 
act solely as a lessor would remain subject to CBOE qualification and 
application rules for member organizations. In this regard, CBOE notes 
the additional application requirements set forth in CBOE Rule 3.4 for 
foreign member organizations would provide it with both access to the 
information it would need to review the foreign member organization's 
application for membership and, if necessary, the requisite 
jurisdiction to litigate matters related to the foreign member 
organization's business on the Exchange. In addition, CBOE states that 
it would investigate a foreign organization applying for membership in 
a lessor-only capacity in accordance with the requirements of CBOE Rule 
3.9, ``Application Procedures and Approval or Disapproval.'' CBOE 
further notes that, through the associated person application process 
set forth in CBOE Rule 3.6, ``Persons Associated with Member 
Organizations,'' the Exchange would have the ability to examine the 
direct owners and executive officers of a foreign member organization 
to ensure that those persons who are not qualified under CBOE rules and 
the Act to be associated with a CBOE member are not associated with the 
foreign member organization.\7\
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    \7\ For an entity not required to register as a broker-dealer, 
CBOE Rule 3.6(b) provides that each associated person of the 
organization that would be required to be disclosed on Form BD as a 
direct owner or executive officer must submit to CBOE's Membership 
Department, pursuant to CBOE Rule 3.9, an application for approval 
to become associated with the member organization in that capacity. 
Under CBOE Rule 3.6(b), no person may become associated with a 
member organization in the capacity of a direct owner or executive 
officer that would be required to be disclosed on Form BD unless and 
until CBOE's Membership Committee approves that association.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with section 6(b)(5) of the Act,\8\ which requires, 
among other things, that the rules of a national securities exchange be 
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 a national 
market system and, in general, to protect investors and the public 
interest.\9\
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    Under CBOE Rule 3.3(a)(ii), a CBOE member organization organized 
under the laws of one of the states of the United States and approved 
by CBOE to act solely as a lessor need not register as a broker or 
dealer pursuant to section 15 of the Act. The proposal amends CBOE Rule 
3.4 to provide the same treatment under the Exchange's rules for 
foreign member organizations that are approved by the Exchange to act 
solely as lessors. The Commission believes that it is reasonable for 
the Exchange to extend the same treatment to a foreign member 
organization approved to act solely as a lessor that is accorded to 
such lessor U.S. member organizations with respect to the broker-dealer 
registration requirement.
    Further, under the proposal, although foreign member organizations 
approved to act solely as lessors no longer would be required to 
maintain the books and records that an organization registered as a 
broker or dealer pursuant to section 15 of the Act would be required to 
keep, such foreign member organizations would continue to be required 
to comply with CBOE Rule 3.4(a)(iii)(A), which requires foreign member 
organizations to maintain in English and at a location in the United 
States the books and records of the organization that relate to its 
business on the Exchange. The Commission believes that the 
recordkeeping requirement of CBOE Rule 3.4(a)(iii)(A) should help to 
ensure that the Exchange will have access to adequate information with 
respect to a foreign member organization approved to act solely as a 
lessor. The Commission notes that the proposal does not alter the 
remaining provisions of CBOE Rule 3.4 or any other CBOE application, 
qualification and membership rules that a foreign member organization 
that intends to act solely as a lessor must satisfy to be

[[Page 10734]]

approved as a CBOE member organization.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-CBOE-2005-105) is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-2930 Filed 3-1-06; 8:45 am]

BILLING CODE 8010-01-P