Document ID: SEC-2008-0987-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-07-16T04:00Z

[Federal Register: July 16, 2008 (Volume 73, Number 137)]
[Notices]               
[Page 40886-40888]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16jy08-105]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58138; File No. SR-CBOE-2007-30]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto Relating to Amendments to Rule 9.21 (Communications to 
Customers)

July 10, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\, and Rule 19b-4 thereunder \2\, notice is hereby 
given that on March 19, 2007, the Chicago Board Options Exchange, 
Incorporated (``CBOE'' or ``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 
substantially prepared by CBOE. CBOE filed Amendment No. 1 to the 
proposed rule change on June 9, 2008.\3\ The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaces the original filing in its 
entirety.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to remove or otherwise amend elements of 
CBOE Rule 9.21 (``Communications to Customers'') that incorporate 
provisions of the Securities Act of 1933 (``Securities Act'') \4\ 
because options traded on CBOE consist solely of standardized options 
issued by the Options Clearing Corporation (``OCC''), a registered 
clearing agency, that are exempt under Rule 238 of the Securities Act 
from all provisions of the Securities Act except the antifraud 
provisions of Section 17. Additionally, the proposed amendments expand 
the types of communications governed by Rule 9.21 to include 
independently prepared reprints and other communications between a 
member or member organization and a customer. The proposed amendments 
also exempt certain options communications from the pre-approval 
requirement by a Registered Options Principal (``ROP''). The text of 
the proposed rule change is available at the Exchange, the Commission's 
Public Reference Room and http://www.cboe.org/legal.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------

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 
Statutory Basis for, Proposed Rule Change

1. Purpose
    On December 23, 2002, the Commission published final rules that 
exempt standardized options, as defined in Rule 9b-1\5\ of the Exchange 
Act, that are issued by a registered clearing agency and traded on a 
registered national securities exchange or on a registered national 
securities association, from all provisions of the Securities Act 
(other than the anti-fraud provisions) and the registration 
requirements of the Exchange Act.\6\ Because the Securities Act and the 
rules thereunder (other than the anti-fraud provisions) are no longer 
applicable to such standardized options, CBOE proposes to remove 
elements of the Securities Act that are embedded in CBOE Rule 9.21. In 
particular, CBOE proposes to remove all references to a ``prospectus'' 
from Rule 9.21. Prospectuses are no longer required for such 
standardized options, and the OCC has, in fact, ceased publication of a 
prospectus.\7\ In addition, the proposed amendments will update and 
reorganize Rule 9.21. The proposed amendments are similar to amendments 
filed with the Commission by the Financial Industry Regulatory 
Authority, Inc. and the New York Stock Exchange, LLC and, if adopted, 
would provide a more uniform approach to communications to customers 
regarding standardized options.\8\
---------------------------------------------------------------------------

    \5\ 17 CFR 240.9b-1.
    \6\ See ``Exemption for Standardized Options From Provisions of 
the Securities Act of 1933 and From the Registration Requirements of 
the Securities Exchange Act of 1934; Final Rule,'' Securities Act 
Release No. 8171 and Exchange Act Release No. 47082 (Dec. 23, 2002), 
68 FR 188 (Jan. 2, 2003).
    \7\ The options disclosure document (``ODD'') prepared in 
accordance with Rule 9b-1 under the Exchange Act is not deemed to be 
a prospectus. 17 CFR 230.135b. See, e.g., Securities Act Release No. 
8049 (Dec. 21, 2001), 67 FR 228 (Jan. 2, 2002).
    \8\ See Exchange Act Release No. 57720 (Apr. 25, 2008) 73 FR 
24332 (May 2, 2008) (SR-FINRA-2008-13) and SR-NYSE-2006-50.
---------------------------------------------------------------------------

a. Deletion of Certain Provisions
    As noted above, CBOE Rule 9.21 contains a number of references to a 
prospectus and other Securities Act requirements. The Exchange proposes 
to delete the following from Rule 9.21:
    (1) Rule 9.21(a)(iv), which references the Securities Act 
definition of prospectus,
    (2) Rule 9.21(d), which incorporates Securities Act principles in 
that it prohibits written material concerning options from being 
furnished to any person who has not previously or contemporaneously 
received the ODD,
    (3) Rule 9.21(e)(ii), which defines the term ``Educational 
Material,'' \9\
---------------------------------------------------------------------------

    \9\ This paragraph essentially incorporates language of 
Securities Act Rule 134a. While this amendment would eliminate the 
separate educational material category, as discussed below the 
Exchange also proposes to revise the definition of Sales Literature 
to include educational material.
---------------------------------------------------------------------------

    (4) Interpretation and Policy .02A of Rule 9.21, which outlines 
what is permitted in an ``Advertisement,'' \10\ and
---------------------------------------------------------------------------

    \10\ This paragraph essentially incorporates language of 
Securities Act Rule 134.
---------------------------------------------------------------------------

    (5) Interpretation and Policy .03 of Rule 9.21, which concerns 
educational material.\11\
---------------------------------------------------------------------------

    \11\ See note 9, supra.
---------------------------------------------------------------------------

b. Redesignation of Rule 9.21(a) to Proposed Rule 9.21(d) and Related 
Amendments
    Rule 9.21(a) currently contains an outline of the ``General Rule'' 
for options communications. CBOE proposes to redesignate paragraph (a) 
as paragraph (d), and to incorporate limitations on the use of options 
communications contained in Interpretations and Policies .01 of Rule 
9.21 into proposed Rule 9.21(d). In addition, proposed Rule 
9.21(d)(iii) would amend Rule 9.21(a)(iii) by

[[Page 40887]]

clarifying the types of cautionary statements and caveats that are 
prohibited. Also, as previously noted, CBOE proposes to delete Rule 
9.21(a)(iv).
c. Proposed Amendments to Rule 9.21(b)
    CBOE proposes to amend Rule 9.21(b) to include the types of 
communications proposed to be added to the definition of ``Options 
Communications'' in proposed Rule 9.21(a). Proposed Rules 9.21(b)(ii) 
and (b)(iii) would also amend the current requirements to obtain 
advance approval by a ROP for most options communications by exempting 
certain options communications, defined as ``Correspondence'' and 
``Institutional Sales Material.'' Specifically, proposed Rule 
9.21(b)(ii) would exempt correspondence from the pre-approval 
requirement unless the correspondence is distributed to 25 or more 
existing retail customers within any 30 calendar-day period and makes 
any financial or investment recommendation or otherwise promotes a 
product or service of the member. All correspondence would be subject 
to general supervision and review requirements.\12\ Proposed Rule 
9.21(b)(iii) would exempt institutional sales material from the pre-
approval requirement if the material is distributed to ``qualified 
investors'' (as defined in Section 3(a)(54) of the Exchange Act \13\).
---------------------------------------------------------------------------

    \12\ See CBOE Rule 9.8. Telephone call between Larry Bresnehan 
of CBOE and Haimera Workie, Branch Chief, Office of Chief Counsel, 
Division of Trading and Markets, Securities and Exchange Commission, 
on July 2, 2008.
    \13\ 15 U.S.C. 78c(a)(54).
---------------------------------------------------------------------------

    Pre-approval by a ROP would, however, be required with respect to 
independently prepared reprints. In addition, Proposed Rule 9.21(b)(iv) 
would require that firms retain options communications in accordance 
with the recordkeeping requirements of Rule 17a-4 under the Exchange 
Act.\14\ Proposed Rule 9.21(b)(iv) would also require that firms retain 
other related documents in the form and for the time periods required 
for options communications by Rule 17a-4.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.17a-4. More specifically, Rule 17a-4(b)(4) 
requires that a broker-dealer retain ``originals of all 
communications received and copies of all communications sent * * * 
including all communications which are subject to rules of a self-
regulatory organization of which the member, broker or dealer is a 
member regarding communications with the public.''
---------------------------------------------------------------------------

d. Proposed Amendments to Rule 9.21(c)
    Rule 9.21(c) currently requires members to obtain approval for 
every advertisement and all educational material from the Exchange's 
Department of Compliance. This requirement applies regardless of 
whether the options communications are used before or after the 
delivery of a current ODD. CBOE proposes to amend this provision to 
require approval by the Exchange only with respect to options 
communications used prior to the delivery of a current ODD. The 
Exchange pre-approval requirement for options communications used 
subsequent to the delivery of the ODD is being eliminated because the 
ODD should help alert the customer to the characteristics and risks 
associated with trading in options and because Rule 9.21(b) requires 
the Registered Options Principal of a member organization to pre-
approve options communications (with certain exceptions for 
``Correspondence'' and ``Institutional Sales Material''). Rule 9.21(c) 
would also be amended to include the types of communications added to 
the definition of ``Options Communications'' in proposed Rule 9.21(a).
e. Redesignation of Rule 9.21(e) to Proposed Rule 9.21(a) and Related 
Amendments
    Rule 9.21(e) currently defines terms used in Rule 9.21. CBOE 
proposes to redesignate paragraph (e) as paragraph (a). CBOE also 
proposes to amend the definition of ``Options Communications'' in 
proposed Rule 9.21(a) to expand the types of communications governed by 
Rule 9.21 to include independently prepared reprints and other 
communications between a member or member organization and a customer. 
The Exchange proposes to amend the definitions of ``Advertisement'' and 
``Sales Literature;'' and define ``Correspondence,'' ``Institutional 
Sales Material,'' ``Public Appearances,'' and ``Independently Prepared 
Reprints;'' to clarify the rule. In addition, as previously noted, CBOE 
proposes to delete the definition of ``Educational Material.''
f. Proposed Rule 9.21(e)
    Proposed Rule 9.21(e) would set forth (i) standards for options 
communications that are not preceded or accompanied by an ODD and (ii) 
standards for options communications used prior to delivery of an ODD. 
These requirements generally would clarify and restate the requirements 
contained in the current Interpretations and Policies .02 of Rule 9.21.
g. Interpretations and Policies
    Proposed Rule 9.21(e)(i)(B) would require options communications to 
contain contact information for obtaining a copy of the ODD. Proposed 
Interpretation and Policy .01 would include the provisions found in 
current Section A of Interpretation and Policy .02 regarding how this 
requirement may be satisfied. In addition, as noted above, the 
provisions of Interpretation and Policy .01 regarding limitations on 
the use of options communications are proposed to be incorporated into 
proposed Rule 9.21(d).
    As previously noted, the provisions of Interpretation and Policy 
.02 that outline what is permitted in an advertisement are proposed to 
be deleted and the provisions relating to standards for options 
communications used prior to delivery of the ODD are proposed to be 
incorporated into proposed Rule 9.21(e)(ii).
    Interpretation and Policy .03, which concerns educational material, 
is proposed to be deleted as noted above.
    Interpretation and Policy .04 sets forth the standards applicable 
to Sales Literature. Section A of Interpretation and Policy .04 sets 
forth the requirement that Sales Literature shall state that supporting 
documentation for any claims, comparisons, recommendations, statistics 
or other technical data, will be supplied upon request. The Exchange 
proposes to redesignate Section A of Interpretation and Policy .04 as 
proposed Rule 9.21(d)(vii).
    Section B of Interpretation and Policy .04 pertains to standards 
for Sales Literature that contains projected performance figures. 
Section C of Interpretation and Policy .04 pertains to standards for 
sales literature that contains historical performance figures. The 
Exchange proposes to redesignate Section B of Interpretation and Policy 
.04 as proposed Interpretation and Policy .02 and Section C of 
Interpretation and Policy .04 as proposed Interpretation and Policy 
.03.
    Rule 9.21 currently requires that a copy of the ODD precede or 
accompany options related sales literature. The Exchange is proposing 
to modify the ODD delivery requirement applicable to sales literature 
to provide that an ODD must precede or accompany any communication that 
conveys past or projected performance figures involving options or 
constitutes a recommendation pertaining to options.\15\
---------------------------------------------------------------------------

    \15\ See proposed Rule 9.21(e)(i)(C) and proposed Interpretation 
and Policies .02 and .03.
---------------------------------------------------------------------------

    A notice providing the name and address of a person from whom the 
ODD

[[Page 40888]]

may be obtained would be required in sales literature that does not 
contain a recommendation or past or projected performance figures. 
Because CBOE is proposing to merge educational material into the sales 
literature category,\16\ this amendment would continue to allow 
communications that are educational in nature to be disseminated 
without being preceded or accompanied by a copy of the ODD.
---------------------------------------------------------------------------

    \16\ See Proposed Rule 9.21(a)(ii).
---------------------------------------------------------------------------

    The Exchange proposes to redesignate Section D of Interpretation 
and Policy .04 as proposed Interpretation and Policy .04. The Exchange 
proposes to delete Sections E and F of Interpretation and Policy .04. 
The Exchange believes Section E is unnecessary because worksheets are 
included in the definition of ``Sales Literature.'' The Exchange 
believes Section F is no longer necessary because the Exchange is 
proposing to clarify the record-keeping requirements applicable to 
options communications in proposed Rule 9.21(b)(iv).
2. Statutory Basis
    The proposed amendments to Exchange Rule 9.21 would reflect the 
exemption from the provisions of the Securities Act (other than the 
anti-fraud provisions) for standardized options that are traded on a 
registered national securities exchange or on a registered national 
securities association and would update and reorganize the rule. The 
proposed amendments to Exchange Rule 9.21 are consistent with Section 
6(b) of the Exchange Act \17\ in general and would further the 
objectives of Section 6(b)(5) \18\ in particular in that they are 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest by providing the investing 
public with options communications rules that are designed to provide 
appropriate safeguards and greater clarity by promoting harmonization 
between CBOE's and other SROs' options communications rules.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 purposes of the Exchange 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 self-regulatory organization consents, 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 Exchange 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 rule-comments@sec.gov. Please include 
File Number SR-CBOE-2007-30 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-2007-30. 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 Exchange. 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-2007-30 and should be 
submitted on or before August 6, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-16226 Filed 7-15-08; 8:45 am]

BILLING CODE 8010-01-P