Document ID: SEC-2013-0856-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2013-05-07T04:00Z

[Federal Register Volume 78, Number 88 (Tuesday, May 7, 2013)]
[Notices]
[Pages 26671-26673]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10799]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69496; File No. SR-CBOE-2013-044]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Fingerprint-Based Background Checks of 
Exchange Directors, Officers, Employees and Others

May 2, 2013.
    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 April 18, 2013, Chicago Board Options Exchange, Incorporated 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II, below, which 
Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Chicago Board Options Exchange, Incorporated (the ``Exchange'' or 
``CBOE'') proposes to adopt a rule codifying CBOE's current practice of 
conducting fingerprint checks of directors, officers, employees, 
temporary personnel, independent contractors, consultants, vendors and 
service providers of the Exchange. Under the proposed rule, CBOE would 
conduct these fingerprint checks by submitting the fingerprints taken 
to the Attorney General of the United States or his or her designee for 
identification and processing. In conducting these fingerprint checks, 
CBOE would receive criminal history record information from the 
Attorney General of the United States or his or her designee for 
evaluation and use, in accordance with applicable law, in enhancing the 
security of the Exchange's facilities, systems, data, and/or records 
(collectively, ``facilities and records'').
    The text of the 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
    The Exchange proposes to adopt a rule that would codify the 
Exchange's current practice of conducting fingerprint-based criminal 
records checks of (i) directors, officers and employees of the 
Exchange, and (ii) temporary personnel, independent contractors, 
consultants, vendors and service providers (collectively, 
``contractors'') who have or are anticipated to have access to 
facilities and records. A number of securities markets have filed with 
the Securities and Exchange Commission (``Commission'' or ``SEC'') 
rules to obtain fingerprints from certain enumerated parties.\3\ The 
rule proposed by CBOE in this proposed rule change is consistent with 
these rules.
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    \3\ See Rule 1408 of the International Securities Exchange 
(``ISE''), Rule 28 of the New York Stock Exchange (``NYSE''), Rule 
0140 of the Nasdaq Stock Market, Inc. (``Nasdaq'') and Securities 
Exchange Act Release No. 50157 (August 5, 2004), 69 FR 49924 (August 
12, 2004) (policy adopted by the National Association of Securities 
Dealers, Inc. (``NASD'') (now FINRA) to conduct fingerprint-based 
background checks of NASD employees and independent contractors).
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    Access to the Federal Bureau of Investigation's (``FBI'') database 
of fingerprint based criminal records is permitted only when authorized 
by law. Numerous federal and state laws authorize employers to conduct 
fingerprint-based background checks that make use of the FBI's 
database. Notably, Section 17(f)(2) of the Securities Exchange Act of 
1934, as amended (``Act''), and SEC Rule 17f-2 require partners, 
directors, officers and employees of members of national securities 
exchanges, brokers, dealers, transfer agents, and clearing agencies to 
be fingerprinted and authorize SROs to maintain facilities for 
processing and storing fingerprint cards and criminal

[[Page 26672]]

record information received from the FBI database with respect to such 
cards. Section 17(f)(2) explicitly directs the Attorney General of the 
United States (i.e., the FBI) to provide SROs designated by the 
Commission with access to criminal history record information. Section 
17(f)(2) was amended by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (``Dodd-Frank Act'') to also require partners, 
directors, officers and employees of registered securities information 
processors, national securities exchanges and national securities 
associations to be fingerprinted.\4\ The Exchange believes, therefore, 
that a proposed rule change for a fingerprinting program for directors, 
officers, employees and contractors is a necessary component of the 
Exchange's business plan.
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    \4\ See Section 929S of the Dodd-Frank Act.
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    CBOE believes that fingerprint-based background checks of Exchange 
directors, officers, employees and contractors will promote the 
objectives of investor protection, business continuity and workplace 
safety and its other responsibilities under the Act by providing CBOE 
with an effective tool for identifying and excluding persons with 
felony or misdemeanor conviction records that may pose a threat to the 
safety of Exchange personnel or the security of facilities and records. 
The proposed rule would permit CBOE to conduct fingerprint-based 
background checks of all Exchange directors, officers, employees and 
contractors. All Exchange directors, officers, employees and 
contractors would be subject to fingerprinting at any time. 
Fingerprint-based background checks of contractors would be performed 
prior to providing a contractor with access to facilities and records. 
The Exchange would also conduct fingerprint-based background checks of 
Exchange director candidates that are not already serving on the 
Exchange's Board before they are formally nominated and of employee 
candidates after an offer of employment has been made by the Exchange.
    Any employee who refuses to submit to fingerprinting would be 
subject to progressive discipline up to and including the termination 
of employment. Any person who is given an offer of employment with the 
Exchange who refuses to submit to fingerprinting would have the offer 
withdrawn. A contractor who refuses to submit to fingerprinting would 
be denied access to facilities and records. The Exchange may choose to 
not obtain fingerprints from, or to seek fingerprint-based information 
with respect to, any contractor due to that contractor's limited, 
supervised, or restricted access to facilities and records, or the 
nature or location of his or her work or services, or if the 
contractor's employer conducts fingerprint based criminal records 
checks of its personnel.
    Through access to state-of-the-art information systems administered 
and maintained by the FBI and its Criminal Justice Information Services 
Division, CBOE would receive centrally-maintained ``criminal history 
record information,'' which is arrest-based data and derivative 
information, and may include personal descriptive data; FBI number; 
conviction status; sentencing, probation and parole information; and 
such other information as the FBI may now or hereafter make available 
to CBOE. This information is supplied to the FBI by various local, 
state, federal and/or international criminal justice agencies. Thus, 
the information obtained through fingerprint-based background checks 
provides a profile of a candidate's criminal record and facilitates 
risk assessment with respect to the candidate.
    Access to the FBI's nationwide database is particularly crucial 
with respect to the screening of contractors, who are not employees of 
the Exchange and who therefore are not subject to the pre-hire review 
that the Exchange conducts with respect to employees but whose work 
frequently requires the same or similar access to facilities and 
records as that provided to employees of the Exchange. In furtherance 
of its commitment to utilize and improve technology and systems 
applications to better serve investors, disseminate market information, 
and ensure reliable order handling and execution for all market 
participants, CBOE regularly retains outside vendors whose specialized 
expertise is required for the development, installation and servicing 
of this technology. Such vendors complement the work of CBOE systems 
staff in providing the investment community with an efficient and 
technologically advanced marketplace. Examples of persons from whom 
fingerprints may be obtained under the proposed rule change include the 
following (the plan does not include the fingerprinting of SEC staff), 
all of whom are anticipated to need CBOE-issued photo badges or other 
identification permitting them access to facilities and records for 
more than one day: personnel providing temporary services to CBOE but 
who are employed and provided by a staffing service and non-employee 
technicians whose work with CBOE software and equipment, although 
temporary, necessitates broad access to CBOE facilities.
    The proposed access to criminal history information is consistent 
with federal law. Section 17(f)(2) of the Act and Rule 17f-2 thereunder 
require, subject to certain exemptions, a variety of securities 
industry personnel to be fingerprinted, including partners, directors, 
officers and employees of every member of a national securities 
exchange, brokers, dealers, transfer agents, and clearing agencies. As 
noted above, Section 17(f)(2) was amended by the Dodd-Frank Act to also 
require partners, directors, officers and employees of registered 
securities information processors, national securities exchanges and 
national securities associations to be fingerprinted. Although Section 
17(f)(2) does not require CBOE or other SROs to fingerprint 
contractors, the statute specifically permits SROs designated by the 
SEC to have access to ``all criminal history record information.''
    The proposed access to criminal history information is consistent 
with rules of other SROs \5\ and is also consistent with New York's 
General Business Law, which, among other things, requires SROs in New 
York to fingerprint their employees and those non-employee service 
providers whose access to facilities or records places the self-
regulatory organization at risk.
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    \5\ Supra Footnote 3.
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    CBOE will comply with all applicable laws relating to the use and 
dissemination of criminal history record information obtained from the 
FBI.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\6\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \7\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, 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.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes fingerprint-based background 
checks of Exchange directors, officers, employees and contractors is 
consistent with the

[[Page 26673]]

foregoing requirements of Section 6(b)(5) in that they would help CBOE 
identify and exclude persons with felony or misdemeanor conviction 
records that may pose a threat to the safety of Exchange personnel or 
the security of facilities and records, thereby enhancing business 
continuity, workplace safety and the security of the Exchange's 
operations and helping to protect investors and the public interest. 
The proposed rule is substantially similar to fingerprinting rules of 
other SROs and would conform the Exchange's fingerprinting practices 
with recent amendments to Section 17(f)(2) of the Act.

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. The proposed rule change would 
enhance the security of the Exchange's facilities and records without 
adding any burden on market participants. The proposed rule change 
would conform the Exchange's fingerprinting rules with Section 17(f)(2) 
of the Act as amended by the Dodd-Frank Act. As discussed below, the 
Exchange notes the proposed rule change is based on fingerprinting 
rules of other SROs.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6)(iii) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) \10\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii) \11\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing.
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, 
because it will conform CBOE's fingerprinting practices with Section 
17(f)(2) of the Act, as amended by the Dodd-Frank Act, which requires 
national securities exchanges, among other entities, to fingerprint 
their officers, directors, and employees, and to submit such 
fingerprints to the Attorney General of the United States for 
identification and processing. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\12\
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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 shall institute proceedings to 
determine whether the proposed rule should be approved or 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 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 No. SR-CBOE-2013-044 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.

All submissions should refer to File No. SR-CBOE-2013-044. 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 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 10:00 a.m. and 
3:00 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 No. SR-CBOE-2013-044 and should be 
submitted on or before May 28, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-10799 Filed 5-6-13; 8:45 am]
BILLING CODE 8011-01-P