Document ID: SEC-2015-1749-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2015-10-28T04:00Z

[Federal Register Volume 80, Number 208 (Wednesday, October 28, 2015)]
[Notices]
[Pages 66072-66074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27355]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76235; File No. SR-CBOE-2015-095]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Revisions to the Registered Options 
Principal Examination

October 22, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 16, 2015, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
CBOE. CBOE has designated the proposed rule change as ``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 Rule19b-4(f)(1) thereunder,\4\ which 
renders the proposal effective upon receipt of this filing by 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

    CBOE is filing revisions to the content outline and selection 
specifications for the Registered Options Principal (Series 4) 
examination program.\5\ The proposed revisions update the material to 
reflect changes to the laws, rules and regulations covered by the 
examination and to incorporate the functions and associated tasks 
currently performed by a Registered Options Principal. In addition, 
CBOE is proposing to make changes to the format of the content outline. 
CBOE is not proposing any textual changes to the By-Laws, Schedules to 
the By-Laws or Rules of CBOE. CBOE is proposing these revisions to 
adopt the revised Series 4 examination program of the Financial 
Industry Regulatory Authority, Inc. (``FINRA''). FINRA currently 
administers Series 4 examinations on behalf of CBOE.
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    \5\ CBOE is also proposing corresponding revisions to the Series 
4 question bank. CBOE is submitting this filing for immediate 
effectiveness pursuant to Section 19(b)(3)(A) of the act and Rule 
19b-4(f)(1) thereunder.
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    The revised content outline is attached.\6\ The Series 4 selection 
specifications were submitted to the Commission under separate cover by 
FINRA. FINRA submitted the Series 4 selection specifications in 
connection with a FINRA filing to revise its Series 4 Examination 
Program.\7\ CBOE is in agreement with the selection specifications 
submitted by FINRA.
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    \6\ The Commission notes that the revised content outline is 
attached to the filing, not to this Notice. The content outline is 
available as part of the filing on CBOE's Web site.
    \7\ See Securities Exchange Act Release No. 75246 (June 18, 
2015), 80 FR 36388 (June 24, 2015) (SR-FINRA-2015-018).
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    The text of the [sic] proposed rule change is available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), 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, 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 aspects of such 
statements.

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

1. Purpose
    Section 6(c)(3) of the Act \8\ authorizes CBOE to prescribe 
standards of training, experience, and competence for persons 
associated with CBOE Trading Permit Holders (``TPH''). In accordance 
with that provision, CBOE has developed examinations that are designed 
to establish that persons associated with CBOE TPHs have attained 
specified levels of competence and knowledge, consistent with 
applicable registration requirements under CBOE rules. CBOE 
periodically reviews the content of the examinations to determine 
whether revisions are necessary or appropriate in view of changes 
pertaining to the subject matter covered by the examinations.
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    \8\ 15 U.S.C. 78f(c)(3).
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    CBOE Rule 9.2 states that no TPH organization shall be approved to 
transact options business with the public until those persons 
associated with it who are designated as Options Principals have been 
approved by and registered with the Exchange. Rule 9.2 states that 
persons engaged in the supervision of options sales practices or a 
person to who the designated general partner or executive officer or 
another Registered Options Principal delegates the authority to 
supervise options sales practices shall be designated as Options 
Principals. CBOE Rule 9.2 further requires successful completion of an 
examination prescribed by the Exchange in order to qualify for 
registration as an Options Principal. The Series 4 examination, an 
industry-wide examination, has been designed for this purpose, and 
tests a candidate's knowledge of options trading generally, the 
industry rules applicable to trading of option contracts, and the rules 
of registered clearing agencies for options. The Series 4 examination 
covers, among other things, equity options, foreign currency options, 
and index options.
    In consultation with a committee of industry representatives, 
including representatives from CBOE, FINRA recently undertook a review 
of the Series 4 examination program. As a result of this review, FINRA 
filed revisions to the content outline to reflect changes to the laws, 
rules and regulations covered by the examination and to incorporate the 
functions and associated tasks currently performed by a Registered 
Options Principal. FINRA also made changes to the format of the content 
outline.\9\ CBOE is filing these changes to adopt FINRA's revised 
Series 4 examination program.
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    \9\ See Securities Exchange Act Release No. 75246 (June 18, 
2015), 80 FR 36388 (June 24, 2015) (SR-FINRA-2015-018).
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Current Content Outline
    The current content outline is divided into three sections. The 
following are the three sections and the number of questions associated 
with each of the

[[Page 66073]]

sections, denoted Section 1 through Section 3:
    1. Options Investment Strategies, 34 questions;
    2. Supervision of Sales Activities and Trading Practices, 75 
questions; and
    3. Supervision of Employees, Business Conduct, and Recordkeeping 
and Reporting Requirements, 16 questions.
    Each section also includes the applicable laws, rules and 
regulations associated with that section. The current content outline 
also includes a preface (addressing, among other things, the purpose, 
administration and scoring of the examination), sample questions and 
reference materials.
Proposed Revisions
    CBOE is proposing to divide the content outline into six major job 
functions that are performed by a Registered Options Principal. The 
following are the six major job functions, denoted Function 1 through 
Function 6, with the associated number of questions:
    Function 1: Supervise the Opening of New Options Accounts, 21 
questions;
    Function 2: Supervise Options Account Activities, 25 questions;
    Function 3: Supervise General Options Trading, 30 questions;
    Function 4: Supervise Options Communications, 9 questions;
    Function 5: Implement Practices and Adhere to Regulatory 
Requirements, 12 questions; and
    Function 6: Supervise Associated Persons and Personnel Management 
Activities, 28 questions.
    CBOE is proposing to adjust the number of questions assigned to 
each major job function to ensure that the overall examination better 
reflects the key tasks performed by a Registered Options Principal. The 
questions on the revised Series 4 examination will place greater 
emphasis on key tasks such as supervision of registered persons, sales 
practices and compliance.
    Each function also includes specific tasks describing activities 
associated with performing that function. There are four tasks (1.1-
1.4) associated with Function 1; four tasks (2.1-2.4) associated with 
Function 2; four tasks (3.1-3.4) associated with Function 3; four tasks 
(4.1-4.4) associated with Function 4; two tasks (5.1-5.2) associated 
with Function 5; and four tasks (6.1-6.4) associated with Function 
6.\10\ By way of example, one such task (Task 4.2) is review options 
retail communications and determine appropriate approval.\11\ Further, 
the content outline lists the knowledge required to perform each 
function and associated tasks (e.g., types of retail communications, 
required approvals).\12\ In addition, where applicable, the content 
outline lists the laws, rules and regulations a candidate is expected 
to know to perform each function and associated tasks. These include 
the applicable FINRA Rules (e.g. FINRA Rule 2220), NASD Rules (e.g., 
NASD Rule 2711(i)), CBOE Rules (e.g., CBOE Rule 9.21) and SEC rules 
(e.g., SEA Rule 135a).\13\ FINRA conducted a job analysis study of 
Registered Options Principals, which included the use of a survey, in 
developing each function and associated tasks and updating the required 
knowledge set forth in the revised content outline. The functions and 
associated tasks, which appear in the revised content outline for the 
first time, reflect the day-to-day activities of a Registered Options 
Principal.
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    \10\ See Exhibit 3, Outline Pages 6-22. The Commission notes 
that Exhibit 3 is an exhibit to the filing, not to this Notice.
    \11\ See Exhibit 3, Outline Page 15.
    \12\ See Exhibit 3, Outline Page 15.
    \13\ See Exhibit 3, Outline Page 15.
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    As noted above, CBOE also is proposing to revise the content 
outline to reflect changes to the laws, rules and regulations covered 
by the examination. Among other revisions, CBOE is proposing to revise 
the content outline to reflect the adoption of rules in the CBOE 
rulebook (for example CBOE Rule 3.6 (Persons Associated with TPH 
Organizations; CBOE Rule 4.24 (Supervision); CBOE Rule 6.25 
(Nullification and Adjustment of Options Transactions including Obvious 
Errors) and CBOE Rule 12.4 (Portfolio Margin)
    CBOE is proposing similar changes to the Series 4 selection 
specifications and question bank.
    Finally, CBOE is proposing to make changes to the format of the 
content outline, including the preface, sample questions and reference 
materials. Among other changes, CBOE is proposing to: (1) Add a table 
of contents; \14\ (2) provide more details regarding the purpose of the 
examination; \15\ (3) provide more details on the application 
procedures; \16\ (4) provide more details on the development and 
maintenance of the content outline and examination; \17\ (5) explain 
that the passing scores are established by FINRA staff, in consultation 
with a committee of industry representatives, using a standard setting 
procedure, and that a statistical adjustment process known as equating 
is used in scoring exams; \18\ and (6) note that each candidate will 
receive a score report at the end of the test session, which will 
indicate a pass or fail status and include a score profile listing the 
candidate's performance on each major content area covered on the 
examination.\19\
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    \14\ See Exhibit 3, Outline Page 2.
    \15\ See Exhibit 3, Outline Page 3.
    \16\ See Exhibit 3, Outline Page 3.
    \17\ See Exhibit 3, Outline Page 4.
    \18\ See Exhibit 3, Outline Page 5.
    \19\ See Exhibit 3, Outline Page 5.
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    The number of questions on the Series 4 examination will remain at 
125 multiple-choice questions,\20\ and candidates will have 195 minutes 
to complete the examination. The test time will change from 180 minutes 
to 195 minutes because pretest items increased from 5 items to 10 
items. Currently, a score of 70 percent is required to pass the 
examination. The passing score will change to 72 percent with the 
revised Series 4 examination program.
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    \20\ Consistent with FINRA's practice of including ``pretest'' 
items on certain qualification examinations, which is designed to 
ensure that new examination items meet acceptable testing standards 
prior to use for scoring purposes, the examination includes 10 
additional, unidentified pretest items that do not contribute 
towards the candidate's score. Therefore, the examination actually 
consists of 135 items, 125 of which are scored. The 10 pretest items 
are randomly distributed throughout the examination.
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Availability of Content Outline
    The revised Series 4 content outline is available on FINRA's Web 
site, at www.finra.org/brokerqualifications/exams.
    CBOE is filing the proposed rule change for immediate 
effectiveness. CBOE will announce the proposed rule change in a 
Regulatory Circular.
2. Statutory Basis
    CBOE believes that the proposed revisions to the Series 4 
examination program are consistent with the provisions of Section 
6(b)(5) of the Act,\21\ which requires, among other things, that CBOE 
rules must be 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, and Section 
6(c)(3) of the Act,\22\ which authorizes CBOE to prescribe standards of 
training, experience, and competence for persons associated with CBOE 
TPHs. CBOE believes that the proposed revisions will further these 
purposes by updating the examination program to reflect changes to the 
laws, rules and regulations covered by the examination and to 
incorporate the functions and

[[Page 66074]]

associated tasks currently performed by a Registered Options Principal.
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    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 15 U.S.C. 78f(c)(3).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The updated examination aligns 
with the functions and associated tasks currently performed by a 
Registered Options Principal and tests knowledge of the most current 
laws, rules, regulations and skills relevant to those functions and 
associated tasks. As such, the proposed revisions would make the 
examination more efficient and effective.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \23\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\24\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
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. If 
the Commission takes such action, the Commission will institute 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(1).
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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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2015-095 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-2015-095. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing 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 the 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-2015-095 and should be 
submitted on or before November 18, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
 [FR Doc. 2015-27355 Filed 10-27-15; 8:45 am]
 BILLING CODE 8011-01-P