Document ID: SEC-2009-0049-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2009-01-12T05:00Z

[Federal Register: January 12, 2009 (Volume 74, Number 7)]
[Notices]               
[Page 1264-1266]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ja09-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59200; File No. SR-CBOE-2008-125]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to Affiliations With Broker-Dealers

January 6, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 15, 2008, 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 prepared by the CBOE. 
The Exchange has designated this proposal as one constituting a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule under Section 
19(b)(3)(A)(i) of the Act,\3\ and Rule 19b-4(f)(1) \4\ thereunder, 
which renders the proposal effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is seeking effectiveness of an interpretation of a 
CBOE Constitution provision related to affiliations with broker-
dealers. The proposed rule change is available on CBOE's Web site 
(http://www.cboe.org/legal), at the 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, the Exchange 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 Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is in the process of forming a wholly owned broker-
dealer subsidiary. With respect to the contemplated establishment of 
the broker-dealer, the Exchange is seeking effectiveness of an 
interpretation of a CBOE Constitution provision related to affiliations 
with broker-dealers.
    In particular, the Exchange notes that Article VIII, Section 8.1(b) 
of the CBOE Constitution provides in part that ``[n]o officer, other 
than the Vice Chairman of the Board, shall be a member or affiliated 
with a member or a broker or dealer in securities or commodities.'' \5\

[[Page 1265]]

The term ``affiliated with'' is not explicitly defined in the 
Constitution, but that term, and the related definition of control, has 
been defined in the Exchange Rules since 1973, the year the Exchange 
was founded.\6\ The term ``affiliate'' or a person ``affiliated with'' 
another person is defined in the Exchange Rule 1.1(j) as, ``a person 
who, directly or indirectly, controls, is controlled by, or is under 
common control with, such other person.'' The term ``control'' is 
defined in Exchange Rule 1.1(k) as ``the power to exercise a 
controlling influence over the management or policies of a person, 
unless such power is solely the result of an official position with 
such person. Any person who owns beneficially, directly or indirectly, 
more than 20% of the voting power in the election of directors of a 
corporation, or more than 25% of the voting power in the election of 
directors of any other corporation which directly or through one or 
more affiliates owns beneficially more than 25% of the voting power in 
the election of directors of such corporation, shall be presumed to 
control such corporation.''
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    \5\ The Exchange notes that this provision of the Constitution 
is proposed to be deleted as part of the Exchange's contemplated 
demutualization and, upon its deletion, there would no longer be 
such a restriction. See SR-CBOE-2008-88. The Exchange also notes 
that other self-regulatory organizations do not have restrictions in 
their rules preventing their respective officers from acting in an 
official capacity with a broker-dealer affiliate. For example, 
certain officers of the National Stock Exchange, Inc. (``NSX'') are 
also officers and principals of NSX's subsidiary broker-dealer, NSX 
Securities LLC.
    \6\ E-mail from Jennifer M. Lamie, Assistant General Counsel, 
CBOE, to Richard Holley III, Senior Special Counsel, Division of 
Trading and Markets, Commission, dated January 5, 2009 (adding the 
preceding sentence to clarify the nature of the proposed 
interpretation).
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    The purpose of this rule filing is to seek effectiveness of an 
Exchange interpretation that Section 8.1(b), by its terms, does not 
apply to instances in which an Exchange officer acts solely in an 
official position for a broker-dealer, consistent with the longstanding 
definition and application of the term ``affiliated with'' in the 
Exchange Rules.\7\ The essence of this interpretation is that if an 
Exchange officer is not in a control relationship with a broker-dealer 
subsidiary of the Exchange, the officer is not an ``affiliate'' of the 
subsidiary even if the officer serves in an official position with the 
subsidiary, and thus the Exchange officer's serving in an official 
position of the subsidiary is not prohibited by Section 8.1(b) of the 
Constitution. For example, the Exchange believes it would be 
permissible and consistent with Section 8.1(b) for an Exchange officer 
to be a director, officer, principal, or an employee of a broker-dealer 
that is a wholly-owned subsidiary of the Exchange.
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    \7\ Id.
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    The Exchange notes that until it demutualizes it only intends to 
utilize the interpretation to permit Exchange officers to act in an 
official position with the wholly-owned broker-dealer subsidiary in 
accordance with Section 8.1(b) and to form the broker-dealer. The 
Exchange represents that the broker-dealer will not perform any 
operations without first discussing with the Commission staff whether 
any of the broker-dealer's operations should be subject to an Exchange 
rule filing required under the Act.\8\ These Exchange also notes that 
there are other protections in place that limit the potential conflicts 
between the Exchange as a self-regulator and broker-dealers, including, 
among other things, the existence of a Regulatory Oversight Committee 
as a committee of the CBOE Board of Directors that consists solely of 
public directors.
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    \8\ 15 U.S.C. 78s(b)(1). In particular, the Exchange represents 
that it will not commence operations for such broker-dealer prior to 
an effective rule filing with the Commission setting forth the 
manner in which the broker-dealer would operate. E-mail from 
Jennifer M. Lamie, Assistant General Counsel, CBOE, to Richard 
Holley III, Senior Special Counsel, Division of Trading and Markets, 
Commission, dated January 5, 2009 (adding the preceding clarifying 
text).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \9\ in general and furthers the objectives of 
Section 6(b)(5) of the Act \10\ in particular in that it is designed to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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. 
The proposed rule change is also consistent with the requirements of 
Section 6(b)(1) of the Act,\11\ which requires that an exchange be so 
organized so as to have the capacity to be able to carry out the 
purposes of the Act and to comply, and (subject to any rule or order of 
the Commission pursuant to Section 17(d) \12\ or 19(g)(2) \13\ of the 
Act) to enforce compliance by its members and persons associated with 
its members, with the provisions of the Act, the rules and regulations 
thereunder and the rules of the Exchange. This rule change is designed 
to clarify the meaning and scope of CBOE's Constitution and Rules 
related to affiliations with broker-dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(1).
    \12\ 15 U.S.C. 78q(d).
    \13\ 15 U.S.C. 78s(g)(2).
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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

    The Exchange neither received nor solicited written comments on the 
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change will take effect upon filing 
with the Commission pursuant to Section 19(b)(3)(A)(i) of the Act \14\ 
and Rule 19b-4(f)(1) thereunder,\15\ because it constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(i).
    \15\ 17 CFR 240.19b-4(f)(1).
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    At any time within 60 days of the filing of the 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.

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-2008-125 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington DC 20549-1090.

[[Page 1266]]

All submissions should refer to File Number SR-CBOE-2008-125. 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 No. SR-CBOE-2008-125 and should be 
submitted on or before February 2, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-350 Filed 1-9-09; 8:45 am]

BILLING CODE 8011-01-P