Document ID: SEC-2010-0975-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2010-07-01T04:00Z

[Federal Register: July 1, 2010 (Volume 75, Number 126)]
[Notices]               
[Page 38164-38167]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jy10-128]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62382; File No. SR-CBOE-2010-058]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Conforming Changes in Connection With 
Demutualization

June 25, 2010.
    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 June 18, 2010, the Chicago Board Options Exchange, Incorporated 
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule

[[Page 38165]]

change as described in Items I and II below, which Items have been 
prepared by the CBOE. CBOE has filed the proposal pursuant to Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 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 parties.
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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).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE is filing this proposed rule change to make certain conforming 
and technical changes to Chapters IV-LIV of CBOE's rules, to the CBOE 
Fee Schedule, to CBOE's circular regarding membership application and 
other membership fees (``CBOE Membership Fee Circular''), and to the 
CBOE Stock Exchange, LLC (``CBSX'') Fee Schedule in connection with the 
restructuring of CBOE from a non-stock corporation to a stock 
corporation and wholly-owned subsidiary of CBOE Holdings, Inc. (``CBOE 
Holdings'').
    The text of the proposed amendments to CBOE's rules, the proposed 
amendments to the CBOE Fee Schedule, the proposed amendments to the 
CBOE Membership Fee Circular, and the proposed amendments to the CBSX 
Fee Schedule is available on the Exchange's Web site (http://
www.cboe.org/Legal/), at the Exchange's Office of the Secretary, at the 
Commission's Public Reference Room and on the Commission's Web site 
http://www.sec.gov.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved a rule filing (``Demutualization 
Filing'') by the Exchange to adopt a new Certificate of Incorporation 
and Bylaws for CBOE Holdings and to replace the Exchange's Certificate 
of Incorporation and Constitution with a new Certificate of 
Incorporation and Bylaws in connection with the restructuring of the 
Exchange from a non-stock corporation to a stock corporation and 
wholly-owned subsidiary of CBOE Holdings (``Restructuring 
Transaction'').\5\ In general, these changes are designed to 
restructure the Exchange in the manner described in the preceding 
sentence and to address the operation of the Exchange as a self-
regulatory organization in this new structure.
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    \5\ Securities Exchange Act Release No. 62158 (May 24, 2010), 75 
FR 30082 (May 28, 2010) (SR-CBOE-2008-88).
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    As part of the Demutualization Filing, the Exchange amended 
Chapters I-III of its rules to provide for the use of Trading Permits 
to access the Exchange and to make certain technical and conforming 
changes. These changes became effective upon the consummation of the 
Restructuring Transaction on June 18, 2010. Accordingly, as indicated 
in the Demutualization Filing, the Exchange now is submitting this 
companion filing to make the changes proposed in Chapters I-III to the 
remaining chapters of the Exchange's rules (Chapters IV-LIV).\6\ This 
companion filing also proposes to make corollary changes to the CBOE 
Fee Schedule, the Membership Fee Circular, and the CBSX Fee Schedule. 
The Exchange decided to make the changes in this manner because of the 
length of the Demutualization Filing and the fact that the substantive 
changes to Exchange's rules regarding trading access were subject to 
notice and comment as part of the Demutualization Filing.
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    \6\ The Exchange also amended CBOE Rule 8.3 in the 
Demutualization Filing.
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    Listed below are the changes to the rules in Chapters I-III made by 
the Demutualization Filing that will be made to the rules in the 
remaining chapters and to the Fee Schedule by this filing:
     The Exchange is proposing to change references to the term 
``member'' in the rules in Chapters IV-LIV, the CBOE Fee Schedule, and 
the CBOE Membership Fee Circular to ``Trading Permit Holder.'' \7\ As 
part of this change, references to an ``individual member'' will be 
changed to an ``individual Trading Permit Holder'' and references to a 
``member organization'' will be changed to a ``TPH organization.''
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    \7\ The term ``Trading Permit Holder'' is defined in Section 
1.1(f) of the CBOE Bylaws as:
    any individual, corporation, partnership, limited liability 
company or other entity authorized by the Rules that holds a Trading 
Permit. If a Trading Permit Holder is an individual, the Trading 
Permit Holder may also be referred to as an ``individual Trading 
Permit Holder.'' If a Trading Permit Holder is not an individual, 
the Trading Permit Holder may also be referred to as a ``TPH 
organization.'' A Trading Permit Holder is a ``member'' solely for 
purposes of the Act; however, one's status as a Trading Permit 
Holder does not confer on that Person any ownership interest in the 
Exchange.
    CBOE Rule 1.1(gg) also defines the term ``Trading Permit 
Holder'' by cross-referencing this definition in the CBOE Bylaws.
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     The Exchange is proposing to change references to the term 
``membership'' in the rules in Chapters IV-LIV, the CBOE Fee Schedule, 
and the CBOE Membership Fee Circular to either ``Trading Permit'' or 
``Trading Permit Holder'' depending on the circumstances of its usage. 
In certain circumstances, the term ``membership'' is used to refer to 
the possession of the right to trade on the Exchange.\8\ In those 
circumstances, the term will be changed to ``Trading Permit.'' In 
addition, because a Trading Permit will be a license issued by the 
Exchange, references in those circumstances related to ``owning'' or 
``leasing'' a membership will be changed to ``holding'' a Trading 
Permit. In other circumstances, the term ``membership'' is used to 
refer to the members of the Exchange.\9\ In those circumstances, the 
term will be changed to ``Trading Permit Holders.'' In still other 
circumstances, the term ``membership'' is used to refer to being or 
becoming a member of the Exchange.\10\ In those circumstances, the term 
will be changed to ``Trading Permit Holder.''
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    \8\ For example, the number of ``memberships'' owned or leased 
by a Market Maker serves as the basis in CBOE Rule 8.3 for 
determining the number of options classes that the Market Maker can 
trade. The term ``membership'' when used in this manner will be 
changed to ``Trading Permit.''
    \9\ For example, the Exchange is required in CBOE Rule 6.2B(a) 
to provide notice to the ``membership'' of the period of time before 
the opening of trading in the underlying security when the Hybrid 
System will accept orders and quotes. The term ``membership'' when 
used in this manner will be changed to ``Trading Permit Holders.''
    \10\ For example, CBOE Rule 4.6 in part prohibits members, 
persons associated with members and applicants for ``membership'' 
from making any willful or material misrepresentation, including a 
misstatement or false statement, or omission in any application, 
report or other communication to the Exchange. This provision will 
be amended to prohibit Trading Permit Holders, persons associated 
with Trading Permit Holders and applicants to be Trading Permit 
Holders from making any willful or material misrepresentation, 
including a misstatement or false statement, or omission in any 
application, report or other communication to the Exchange.
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     In connection with the change of the term ``member'' to 
``Trading Permit Holder,'' the Exchange is proposing to change 
references to the term ``Clearing Member'' in the rules in Chapters 
IV--

[[Page 38166]]

LIV and the CBOE Fee Schedule to ``Clearing Trading Permit Holder.'' 
\11\ The Exchange is also proposing to change certain references to the 
term ``member firm'' in the CBOE Fee Schedule to ``Clearing Trading 
Permit Holder'' (as the term ``member firm'' has also been used to 
refer to a CBOE Clearing Member because Clearing Members utilize the 
``F'' (or ``Firm'') order origin code). Similarly, the Exchange is 
proposing to change references to the term ``Person Associated with a 
Member'' in the rules in Chapters IV--LIV, the CBOE Fee Schedule, and 
the CBOE Membership Fee Circular to ``Person Associated with a Trading 
Permit Holder.'' \12\ In addition, the Exchange is proposing to change 
references to the ``Membership Department'' in the rules in Chapters 
IV--LIV to ``TPH Department.'' \13\
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    \11\ See CBOE Rule 1.1(f) (amended in the Demutualization Filing 
to change the defined term ``Clearing Member'' to ``Clearing Trading 
Permit Holder''). The substance of the definition of ``Clearing 
Member'' is unchanged.
    \12\ See CBOE Rule 1.1(qq) (amended in the Demutualization 
Filing to change the defined term ``Person Associated with a 
Member'' to ``Person Associated with a Trading Permit Holder''). The 
substance of the definition of ``Person Associated with a Member'' 
is unchanged.
    \13\ See CBOE Rule 1.1(iii) (amended in the Demutualization 
Filing to define the term ``TPH Department''). This provision 
defines the term as the department or division of the Exchange 
(which may be referred to by the Exchange from time to time by a 
name other than the TPH Department) that has the functions set forth 
in the Rules for the TPH Department. The Exchange initially plans to 
refer to the department of the Exchange that has the functions set 
forth in the Rules for the TPH Department as the ``Registration 
Services Department'' and uses that term in reference to the TPH 
Department in the revised CBOE Fee Schedule and CBOE Membership Fee 
Circular.
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     The Exchange is proposing to change references to the term 
``Constitution'' in the rules in Chapters IV--LIV to ``Bylaws.'' \14\ 
The Exchange is making this change because it now has ``Bylaws'' rather 
than a ``Constitution'' following the restructuring of the Exchange to 
a for-profit stock corporation.
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    \14\ See CBOE Rule 1.1(b) (amended in the Demutualization Filing 
to change the defined term ``Constitution'' to ``Bylaws'').
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     The Exchange is proposing to delete the reference to the 
term ``lessor'' and the related language in CBOE Rule 4.18 because the 
concept of leasing memberships no longer exists after the restructuring 
of the Exchange.\15\
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    \15\ See CBOE Rule 1.1(ff) (amended in the Demutualization 
Filing to delete the defined term ``Lessor'' and replace it with the 
defined term ``Person''). The Exchange also deleted the term 
``Lessee'' in the Demutualization Filing. See CBOE Rule 1.1(gg) 
(amended in the Demutualization Filing to delete the defined term 
``Lessee'' and replace it with the defined term ``Trading Permit 
Holder'').
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     The Exchange is proposing to delete references to the 
concept of registering a membership for a member organization because 
that concept does not exist now that Trading Permits are used to 
provide trading access to the Exchange.\16\
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    \16\ See, e.g., CBOE Rule 3.8 as amended in the Demutualization 
Filing.
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     The Exchange is proposing to delete references relating to 
the requirement to post notices of proposed actions on the Exchange 
Bulletin Board.\17\ As noted in the Demutualization Filing, the use of 
a physical bulletin board at the Exchange has become outdated as 
trading on the Exchange has become more electronic and remote from the 
Exchange. Despite this change, the Exchange will still be required to 
provide persons with notice of proposed actions. The Exchange will also 
continue to provide notice of proposed actions via electronic means, 
such as through its Web site.
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    \17\ See CBOE Rule 3.9(e) as amended in the Demutualization 
Filing.
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    In addition to these changes, the Exchange is proposing to make 
technical, non-substantive changes to clarify its regulatory authority 
to revoke Trading Permits when a Trading Permit Holder experiences 
operational or financial difficulty, as well as its regulatory 
authority to suspend or revoke Trading Permits when a Trading Permit 
Holder is disciplined by the Exchange. For example, the Exchange is 
proposing to amend CBOE Rule 16.4 to provide that the Exchange can 
revoke a Trading Permit of a Trading Permit Holder who has been 
suspended for operational or financial difficulty in the event the 
holder does not apply for reinstatement (or does not obtain 
reinstatement) in accordance with CBOE Rule 16.3. In addition, the 
Exchange is proposing to amend Rule 17.1 to provide the Exchange with 
the authority to suspend or revoke one or more Trading Permits of a 
Trading Permit Holder in the event the holder has been disciplined by 
the Exchange. The proposed changes to Rules 16.4 and 17.1 apply the new 
terminology without altering the existing revocation and suspension 
authority.
    The Exchange is also proposing to make technical, non-substantive 
changes to a few rules in Chapters IV--LIV to make certain corrections 
to them. For example, the Exchange is updating a cross-reference in 
CBOE Rule 6.7. In general, this provision limits the liability of the 
Exchange, its directors, officers and employees, and provides that this 
limitation of liability is in addition to the limitation of liability 
provided in Article Thirteenth of the Exchange's Certificate of 
Incorporation.\18\ As a result of the replacement of the Exchange's 
Certificate of Incorporation as mentioned above, the substance of 
current Article Thirteenth has been moved to Article Eighth in the 
Exchange's new Certificate of Incorporation. Accordingly, this cross-
reference in CBOE Rule 6.7 is being updated to refer to Article Eighth 
of the Exchange's Certificate of Incorporation.
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    \18\ Article Thirteenth generally limits the fiduciary liability 
of directors to the fullest extent permitted by the General 
Corporation Law of Delaware.
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    Finally, in addition to updating the provisions of the CBOE Fee 
Schedule and the CBOE Membership Fee Circular to reflect the new 
terminology and Trading Permit structure that will be in place 
following the restructuring of the Exchange, the Exchange is proposing 
to revise the CBOE Fee Schedule and the CBOE Membership Fee Circular to 
eliminate certain fees that will no longer be in place as a result of 
the restructuring. The eliminated fees include: (i) The member dues 
monthly fee, which is being terminated in connection with the 
demutualization of the Exchange; (ii) the lessor firm application fee, 
which is being eliminated because the Exchange no longer has lessor 
members; (iii) the post-demutualization trading permit application fee, 
which terminated by its terms upon the effective date of the 
demutualization of the Exchange (and which is also being deleted from 
the CBSX Fee Schedule); (iv) the fee to transfer a membership into 
trust, because the Exchange no longer has memberships that are owned by 
members and that can be transferred into trust; (v) the member death 
benefit fee, because the Exchange has eliminated the member death 
benefit through the deletion of previous CBOE Rule 3.24 in the 
Demutualization Filing; (vi) the temporary membership status access 
fee, which is being eliminated because the Exchange no longer has 
temporary members; and (vii) the Interim Trading Permit access fee, 
which is being eliminated because the Exchange no longer has an Interim 
Trading Permit program. In conjunction with the elimination of the 
Interim Trading Permit program and because the Exchange no longer has 
lessors or member dues, the Exchange is also proposing to delete the 
dues waiver that was provided to lessors with open leases under the 
Interim Trading Permit program.
2. Statutory Basis
    The proposed rule change updates references in the Exchange's 
rules,

[[Page 38167]]

eliminates potential uncertainty about the application of various rules 
following the Exchange's demutualization by removing obsolete 
terminology from the rules, and does not change the substantive 
application of the Exchange's rules. Accordingly, the Exchange believes 
that the proposed rule change is consistent with the provisions of 
Section 6 of the Act,\19\ in general, and with Section 6(b)(5) of the 
Act,\20\ in particular, in that it is 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, in general, to protect investors and the 
public interest. In addition, the fee changes provided for in the 
proposed rule change eliminate obsolete fees from the CBOE Fee 
Schedule, the CBOE Membership Fee Circular, and the CBSX Fee Schedule 
and will not have an impact on Trading Permit Holders. Therefore, the 
Exchange believes that the proposed rule change also furthers the 
objections of Section 6(b)(4) of the Act \21\ in that it is designed to 
provide for the equitable allocation of reasonable fees and charges 
among persons using Exchange facilities.
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    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78f(b)(4).
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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

    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 does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative prior to 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 
\22\ and Rule 19b-4(f)(6)(iii) thereunder.
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    \22\ 15 U.S.C. 78s(b)(3)(A).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing.\23\ However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requested that the Commission waive 
the 30-day operative delay, as specified in Rule 19b-4(f)(6)(iii),\24\ 
which would make the rule change effective and operative upon filing.
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    \23\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires the self-regulatory organization to give the 
Commission 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. CBOE has satisfied this requirement.
    \24\ 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 allow the Exchange to promptly update its rulebook and 
avoid potential confusion by deleting obsolete terminology and amending 
the Exchange's rulebook to reflect post-demutualization terminology. 
Accordingly, the Commission designates the proposed rule change as 
operative upon filing with the Commission.\25\
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    \25\ For purposes only of waiving the operative delay for this 
proposal, the Commission has 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 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-2010-058 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 Number SR-CBOE-2010-058. 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 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 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-2010-058 and should be submitted on or before July 22, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15998 Filed 6-30-10; 8:45 am]
BILLING CODE 8010-01-P