Document ID: SEC-2008-1202-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2008-09-02T04:00Z

[Federal Register: September 2, 2008 (Volume 73, Number 170)]
[Notices]               
[Page 51324-51326]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02se08-79]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58414; File No. SR-CBOE-2008-87]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Foreign Members

August 22, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 20, 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 CBOE. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    CBOE proposes to adopt a new rule regarding foreign members in 
place of its current rule regarding qualifications of foreign member 
organizations. 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, 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. The 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, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to adopt a new rule 
regarding foreign members in place of CBOE's current rule regarding 
qualifications of foreign member organizations. CBOE's current rule 
regarding qualifications of foreign member organizations is set forth 
in CBOE Rule 3.4. The new rule regarding foreign members is proposed to 
be included in Rule 3.4 in place of the current provisions of that 
Rule.
    Under the new rule, a CBOE member \2\ that does not maintain an 
office in the United States responsible for preparing and maintaining 
financial and other reports required to be filed with the Securities 
and Exchange Commission (``Commission'') and the Exchange would be 
required to: (i) Prepare all such reports, and maintain a general 
ledger chart of account and any description thereof, in English and 
U.S. dollars; (ii) reimburse the Exchange for any expense incurred in 
connection with examination of the member to the extent that such 
expenses exceed the cost of examining a member located within the 
continental United States; and (iii) ensure the availability of an 
individual fluent in English knowledgeable in securities and financial 
matters to assist the representatives of the Exchange during 
examinations.
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    \2\ Under Section 1.1(b) of the CBOE Constitution, the term 
``member'' includes both an individual member and a member 
organization.
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    The foregoing requirements would take the place of the current 
provisions of Rule 3.4 relating to qualifications of foreign member 
organizations.\3\ The Exchange believes that it has and will continue 
to have adequate regulatory jurisdiction over foreign members by virtue 
of the CBOE rule provisions that are generally applicable to all CBOE 
members and does not believe that the existing additional requirements 
in Rule 3.4 for foreign member organizations are necessary for the 
effective regulation of those organizations.
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    \3\ Current Rule 3.4 provides that an organization that is not 
organized under the laws of one of the states of the United States 
must satisfy the following requirements in order to be a member 
organization: (i) The organization must be a corporation or 
partnership organized under the laws of a country other than the 
United States with respect to which an information sharing 
agreement, memorandum of understanding, or treaty is in effect that 
provides the Commission with access to information concerning 
securities trading activity in that country; (ii) the organization 
must disclose to the Exchange all persons associated with the 
organization and all parents of the organization, through all tiers 
of ownership, until the ultimate individual beneficial owners of the 
organization are disclosed; (iii) the organization must maintain in 
English and at a location in the United States (A) the books and 
records of the organization that relate to its business on the 
Exchange, including, but not limited to, any trading records 
relating to trading activity on the Exchange and (B) any other books 
and records of the organization that an organization registered as a 
broker or dealer pursuant to Section 15 of the Securities Exchange 
Act of 1934 (``Act'') (15 U.S.C. 78o) is required to maintain at a 
location in the United States; (iv) the organization must maintain 
its financial records in accordance with United States accounting 
standards; (v) the organization must agree to permit inspections by 
the Exchange and the Commission of the foreign operations of the 
organization related to its securities business; (vi) the 
organization must waive any applicable secrecy laws and be exempted 
from any applicable blocking statutes in the domiciliary 
jurisdiction of the organization; (vii) the organization must 
provide to the Exchange an opinion of legal counsel of the 
domiciliary jurisdiction of the organization which certifies that 
(A) there are no applicable secrecy laws or blocking statutes in 
that jurisdiction or (B) that the organization has effectively 
waived any applicable secrecy laws or is exempted from any 
applicable blocking statutes in that jurisdiction; (viii) any 
customer of the organization that utilizes the organization to 
execute orders on the Exchange must have waived any applicable 
secrecy laws and be exempted from any applicable blocking statutes 
in the domiciliary jurisdiction of the organization; (ix) the 
organization must agree to submit to the jurisdiction of the federal 
courts of the United States and the courts of Illinois and to 
irrevocably waive, to the fullest extent permitted by law, any 
objection which the organization may have based on venue or forum 
non conveniens with respect to any action initiated in such courts; 
(x) the organization must appoint a process agent in Illinois to 
receive, on the behalf of the organization, process which may be 
served in any legal action or proceeding; (xi) the organization must 
own its Exchange membership(s); (xii) the organization must be 
registered as a broker or dealer pursuant to Section 15 of the Act 
(15 U.S.C. 78o); (xiii) the organization must satisfy the foregoing 
requirements in a manner and form prescribed by the Exchange and 
must satisfy such additional requirements that the Exchange 
reasonably deems appropriate; and (xiv) the organization must meet 
the other qualification requirements for membership under the 
Constitution and Rules (except that a foreign member organization 
that is approved to act solely as a lessor is not required to comply 
with items (iii)(B) and (xii) above).
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    For example, each CBOE member organization is required under CBOE 
Rule 3.7(e) to execute a consent to jurisdiction pledging to abide by 
the Constitution and Rules of the Exchange, as from time to time 
amended, and by all circulars, notices, directives, or decisions 
adopted pursuant to or made in accordance with the Constitution and 
Rules. Similarly, direct owners and executive officers of each member 
organization are also required pursuant

[[Page 51325]]

to CBOE Rules 3.6(b) and 3.7(e) to execute such a consent to 
jurisdiction.
    In addition, CBOE Rule 3.6(a) subjects all associated persons of a 
member organization to the Constitution and Rules of the Exchange. Rule 
3.6(a) also requires associated persons to provide information to the 
Exchange with respect to their relationship and dealings with their 
associated member organization and securities business and to permit 
the Exchange to examine their books and records in this regard.
    The authority of the Exchange over member organizations and their 
associated persons is further enlarged by CBOE Rule 17.1, which 
subjects members and associated persons to the disciplinary 
jurisdiction of the Exchange. Specifically, pursuant to Rule 17.1, any 
member organization or person associated with a member organization 
that is alleged to have violated or aided and abetted a violation of 
any provision of the Act,\4\ the rules and regulations promulgated 
thereunder, any constitutional provision, bylaw, or rule of the 
Exchange, or any interpretation thereof or resolution of the CBOE Board 
of Directors regulating the conduct of business on the Exchange is 
subject to the disciplinary jurisdiction of the Exchange.
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    \4\ 15 U.S.C. 78a et seq.
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    Additionally, if there are issues of concern with respect to a 
particular foreign applicant for Exchange membership, the Exchange has 
broad authority in granting or denying Exchange membership and 
association with an Exchange member. In particular, under CBOE Rule 
3.5(b), the Exchange may deny (or may condition) membership or may 
prevent a person from becoming associated (or may condition an 
association) with a member for the same reasons that the Commission may 
deny or revoke a broker-dealer registration and for those reasons 
required or allowed under the Act.\5\ The Exchange may also deny or 
condition membership or association for various reasons under CBOE Rule 
3.5(c), including, among other reasons, if the applicant is unable to 
satisfactorily demonstrate a capacity to adhere to all applicable 
Exchange, Commission, Options Clearing Corporation, and Federal Reserve 
Board policies, rules, and regulations, including those concerning 
record-keeping, reporting, finance, and trading procedures.
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    \5\ 15 U.S.C. 78a et seq.
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    The Exchange believes that the proposed new provisions of Rule 3.4 
will further enhance this existing authority by helping to facilitate 
examinations of foreign members. In particular, the Exchange believes 
that it and its representatives will be better able to conduct such 
examinations because foreign members will be required to maintain 
records in English and U.S. dollars, to have available during such 
examinations a knowledgeable person who speaks English, and to cover 
the incremental cost of such examinations beyond what it would cost to 
conduct an examination within the continental United States.
    The Exchange also notes that this approach is consistent with the 
approach taken in this regard by various other self-regulatory 
organizations (``SROs'') which do not have rule provisions like those 
set forth in current CBOE Rule 3.4 and which instead have rule 
provisions which are substantially the same as the new provisions of 
Rule 3.4 proposed by this rule change.\6\
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    \6\ See International Securities Exchange (``ISE'') Rule 301(b), 
Boston Options Exchange (``BOX'') Section 2(g), NASD Rule 1090 of 
the Financial Industry Regulatory Authority (``FINRA'') Rules, and 
Chicago Stock Exchange (``CHX'') Rule 1(f). The proposed rule change 
uses the formulation of these rules utilized by ISE and BOX. The 
FINRA and CHX rules are equivalent to the ISE and BOX rules in this 
regard, except that the FINRA and CHX rules have an additional 
provision which requires a foreign member to utilize, directly or 
indirectly, the services of a broker-dealer registered with the 
Commission, a bank, or clearing agency registered with the 
Commission located in the United States in clearing all transactions 
involving members of FINRA or CHX, as applicable, except where both 
parties to a transaction agree otherwise. CBOE is not proposing to 
include a similar provision in Rule 3.4 because CBOE already has 
rules that impose a similar requirement, in that all CBOE members 
are required to clear their CBOE transactions through a CBOE 
Clearing Member and through The Options Clearing Corporation (which 
is a clearing agency that is registered with the Commission and that 
is located in the United States). (See, e.g., CBOE Rules 3.28 and 
6.50.)
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    In this era of increased internationalization of the securities 
markets when foreign participation in the U.S. securities markets has 
become more and more prevalent, the Exchange does not believe that its 
rules should create undue barriers to member participation on the 
Exchange by foreign organizations. However, the Exchange has found that 
the existing extensive requirements in Rule 3.4 have tended to either 
discourage foreign organizations from becoming members of the Exchange 
or made it more difficult for them to do so. The Exchange believes that 
the proposed rule change will enhance competition on the Exchange and 
between SROs by facilitating foreign member participation on the 
Exchange, which in turn will inure to the benefit of the securities 
markets, while at the same time maintaining broad regulatory authority 
over foreign members, consistent with the authority in this regard 
possessed by other SROs.
    In addition to the proposed changes to Rule 3.4, the Exchange is 
proposing to make conforming changes to CBOE Rule 3.3. Rule 3.3 
addresses qualifications of member organizations and its applicability 
is currently limited to U.S. organizations because current Rule 3.4 
separately addresses qualifications of foreign member organizations. 
Rule 3.3 is proposed to be revised to eliminate all references that 
limit its current applicability to U.S. organizations. Accordingly, 
going forward both U.S. and foreign organizations would need to satisfy 
the qualification requirements under Rule 3.3, and in addition, foreign 
members would be required to comply with the new requirements of Rule 
3.4 as described above.
2. Statutory Basis
    In light of the extensive regulatory authority of the Exchange over 
all Exchange members, that Exchange members are subject to the 
comprehensive regulation under Exchange rules and federal and state 
securities laws, and that the proposed rule change will enhance this 
authority and regulation by helping to facilitate the examination of 
foreign members, the Exchange believes that the proposed rule change is 
consistent with Section 6(b) of the Act in general, and furthers the 
objectives of Sections 6(b)(2) and 6(b)(5) in particular, by 
facilitating member participation on the Exchange by foreign 
organizations and by removing impediments to a free and open market, 
without diminishing the protection of investors and the public 
interest.

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 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

    Because the foregoing proposed rule change (i) does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and

[[Page 51326]]

(iii) by its terms, does not become operative for thirty days after the 
date of the filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest; provided that the self-regulatory organization has given the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\ 
At any time within sixty days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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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 rule-comments@sec.gov. Please include 
File Number SR-CBOE-2008-87 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-2008-87. 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 self-regulatory 
organization. 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-2008-87, and should be submitted on or before September 23, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-20229 Filed 8-29-08; 8:45 am]

BILLING CODE 8010-01-P