Document ID: SEC-2009-1069-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change Regarding Statutory Disqualification Procedures
Posted Date: 2009-07-29T04:00Z

[Federal Register: July 29, 2009 (Volume 74, Number 144)]
[Notices]               
[Page 37758-37759]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29jy09-134]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60370; File No. SR-CBOE-2009-033]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change Regarding Statutory 
Disqualification Procedures

July 23, 2009.

I. Introduction

    On May 26, 2009, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``SEC'' or ``Commission'') a proposed rule change 
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(the ``Exchange Act''), and Rule 19b-4 thereunder.\2\ The proposed rule 
change was published for comment in the Federal Register on June 22, 
2009.\3\ The Commission received no comments on the proposal. This 
order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60106 (June 12, 
2009), 74 FR 29525 (June 22, 2009) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    Exchange Act Rule 19h-1 \4\ prescribes the form and content of, and 
establishes the mechanism by which the Commission reviews, proposals 
submitted by self-regulatory organizations (``SROs''), such as CBOE, to 
allow a member or associated person subject to a statutory 
disqualification to become or remain a member or associated with a 
member. Among other things, Rule 19h-1 provides for Commission review 
of notices filed by SROs proposing to admit any person to, or continue 
any person in, membership or association with a member, notwithstanding 
a statutory disqualification. However, Exchange Act Rule 19h-1(a)(2)\5\ 
and Exchange Act Rule 19h-1(a)(3)\6\ provide that for certain persons, 
and in limited circumstances, a notice does not need to be filed.
---------------------------------------------------------------------------

    \4\ 17 CFR 240.19h-1.
    \5\ Exchange Act Rule 19h-1(a)(2), 17 CFR 240.19h-1(a)(2), 
provides that a notice need not be filed with the Commission, 
pursuant to Exchange Act Rule 19h-1, regarding an associated person 
subject to a statutory disqualification if the person's activities 
with respect to the member are solely clerical or ministerial in 
nature and such person does not have access to funds, securities, or 
books and records.
    \6\ Exchange Act Rule 19h-1(a)(3), 17 CFR 240.19h-1(a)(3), 
provides that a notice need not be filed with the Commission, 
pursuant to Exchange Act Rule 19h-1, regarding a person or member 
subject to a statutory disqualification if the person or member 
proposed for continued association or membership, respectively, 
satisfies the requirements of Exchange Act Rule 19h-1(a)(3)(i)-(vi).
---------------------------------------------------------------------------

    CBOE Rule 3.18(a) provides that CBOE may determine not to permit a 
member or an associated person of a member who is or becomes subject to 
a statutory disqualification under the Exchange Act,\7\ to continue in 
membership or in association with a member. Under Rule 3.18(b), a 
member or an associated person who is or becomes subject to a statutory 
disqualification and wishes to continue in membership or in association 
with a member must submit an application to the Exchange to do so. When 
the Exchange receives such an application, or otherwise becomes aware 
that a member or an associated person is subject to a statutory 
disqualification, the Exchange is required to appoint a panel to 
conduct a hearing under the procedures set forth in Rule 3.18 to 
determine whether to allow the member or associated person to continue 
in membership or in association with a member.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78a et seq.
---------------------------------------------------------------------------

    Interpretation and Policy .03 to Rule 3.18 currently permits the 
Exchange to waive the hearing provisions of Rule 3.18 when the Exchange 
intends to grant an associated person's application for continued 
association and the Exchange is not required to make a notice filing 
with the Commission under Exchange Act Rule 19h-1(a)(2).\8\ The 
Exchange proposed to expand its ability to waive the hearing provisions 
of Rule 3.18 when the Exchange intends to grant a member's or 
associated person's application for continued membership or association 
and the Exchange is not required to make a notice filing with the 
Commission under Exchange Act Rule 19h-1(a)(3).
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 56614 (October 4, 
2007), 72 FR 58132 (October 12, 2007) (SR-CBOE-2007-14).
---------------------------------------------------------------------------

    CBOE also proposed to waive the hearing provisions of Rule 3.18 
when it determines to allow a member to continue in membership, or an 
associated person to continue in association with a member, and CBOE 
determines that it is otherwise appropriate to waive the hearing 
provisions of Rule 3.18 under the circumstances. For example, a 
settlement agreement for a disciplinary matter involving CBOE and 
multiple regulators or SROs could fully address statutory 
disqualification issues, obviating the need for a CBOE hearing on those 
same issues. The Exchange might also choose to exercise this waiver 
authority when no regulatory purpose would be served by conducting a 
hearing under Rule 3.18, such as when the Commission initiated the 
proceeding regarding the underlying conduct that resulted in the 
statutory disqualification and the sanction imposed in the matter does 
not inhibit the applicable party's ability to continue as an Exchange 
member or associated person.
    Interpretation and Policy .01 to Rule 3.18 (``Rule 3.18.01'') 
provides that the Exchange may waive the provisions of Rule 3.18 when a 
proceeding is pending before another SRO to determine whether to permit 
a member or an associated person to continue in

[[Page 37759]]

membership or association with the member notwithstanding a statutory 
disqualification. When the Exchange exercises this waiver authority, 
Rule 3.18.01 currently provides that the Exchange Department of 
Financial and Sales Practice Compliance shall determine whether the 
Exchange will concur in any the Exchange Act Rule 19h-1 filing made by 
another SRO. The Exchange proposed to make two clarifying changes to 
this provision. First, the Exchange proposed to replace the reference 
to the ``Department of Financial and Sales Practice Compliance'' with 
the ``Exchange'' because the Exchange no longer has a department by 
that name. Second, the Exchange proposed to include the words ``member 
or'' in the last sentence of Rule 3.18.01 to clarify that the Exchange 
may concur in any Exchange Act Rule 19h-1 filing made by another SRO 
with respect to a member or an associated person. This change is 
consistent with the rest of Rule 3.18.01.

III. Discussion

    The Commission has carefully reviewed the proposed rule change and 
finds that it is generally consistent with Section 6(b)\9\ of the 
Exchange Act and the rules and regulations thereunder applicable to a 
national securities exchange.\10\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Exchange 
Act,\11\ which requires the rules of a national securities exchange to, 
among other things, be designed to remove impediments to and perfect 
the mechanism of a free and open market and, in general, to protect 
investor and the public interest. The Commission believes that the 
proposed rule change will enable CBOE to more efficiently administer 
its statutory disqualification program while at the same time 
protecting investors and the public interest by allowing CBOE to 
reallocate resources that would otherwise be spent on unnecessary 
statutory disqualification hearings.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ 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).
    \11\ 15 U.S.C. 78f(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\12\ that the proposed rule change (SR-CBOE-2009-033) be, 
and hereby is, approved. 
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17992 Filed 7-28-09; 8:45 am]

BILLING CODE 8010-01-P