Document ID: SEC-2012-0805-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Board Options Exchange, Inc.
Posted Date: 2012-05-22T04:00Z

[Federal Register Volume 77, Number 99 (Tuesday, May 22, 2012)]
[Notices]
[Pages 30338-30341]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12305]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67000; File No. SR-CBOE-2012-039]

Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend Rule 3.6A--Qualification and Registration of 
Trading Permit Holders and Associated Persons

May 16, 2012.
    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 May 3, 2012, 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 and II below, which Items have been prepared by CBOE. The 
Exchange filed the proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 
19b-4(f)(6) 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)(iii).
    \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

    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act''),\5\ the Chicago Board Options 
Exchange, Incorporated (``CBOE'' or the ``Exchange'') proposes to (i) 
remove the language in Interpretation and Policy .05 relating to 
acceptable substitute qualification examinations; (ii) codify into the 
Exchange's rules required registration categories for Trading Permit 
Holders and TPH organizations that conduct proprietary trading, market-
making and/or that effect transactions on behalf of broker dealers; 
(iii) specify the acceptable qualification requirements for Trading 
Permit Holders and TPH organizations that conduct proprietary trading, 
market-making and/or that effect transactions on behalf of broker 
dealers; (iv) add an interpretation to state explicitly in the rule 
that individual Trading Permit Holders and individual associated 
persons must satisfy all registration and qualification requirements 
prior to acting in such registered capacity on behalf of a Trading 
Permit Holder or TPH organization; and (v) clarify the requirements 
applicable to Proprietary Trader Principals (TP) associated with a 
Trading Permit Holder or TPH organization. The text of the proposed 
rule change is available on the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's Office of the Secretary and at 
the Commission.
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    \5\ 15 U.S.C. 78s(b)(1).
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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. 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 
Statutory Basis for, Proposed Rule Change

1. Purpose
    CBOE proposes to amend Rule 3.6A to (i) remove the language in 
Interpretation and Policy .05 relating to acceptable substitute 
qualification examinations; (ii) codify into the Exchange's rules 
required registration categories for Trading Permit Holders and TPH 
organizations that conduct proprietary trading, market-making and/or 
that effect transactions on behalf of broker dealers; (iii) specify the 
acceptable qualification examinations (and related registration 
categories) for Trading Permit Holders and TPH organizations that 
conduct proprietary trading, market-making and/or that effect 
transactions on behalf of broker dealers; (iv) add an interpretation to 
state explicitly in the rule that individual Trading Permit Holders and 
individual associated persons must satisfy all registration and 
qualification requirements prior to engaging in the securities business 
of a Trading Permit Holder or TPH organization (or prior to acting in a 
new capacity on behalf of a Trading Permit Holder or TPH organization 
where such capacity has additional registration/qualification 
requirements); and (v) clarify the

[[Page 30339]]

requirements applicable to Proprietary Trader Principals (TP) 
associated with a Trading Permit Holder or TPH organization.
    CBOE is proposing to identify the registration categories and 
qualification requirements for Trading Permit Holders and TPH 
organizations in the proposed Interpretation and Policy .08 to Rule 
3.6A. CBOE Rule 3.6A(a) provides that individual Trading Permit Holders 
and individual associated persons engaged or to be engaged in the 
securities business of a Trading Permit Holder or TPH organization 
shall be registered with the Exchange in the category of registration 
appropriate to the function to be performed as prescribed by the 
Exchange.\6\ On June 28, 2011, the Exchange issued a Regulatory 
Circular prescribing the registration and qualification requirements 
(including prerequisite examinations) for Trading Permit Holders and 
TPH organizations conducting proprietary trading, market-making and/or 
effecting transactions on behalf of other broker dealers.\7\ These 
requirements included registration by individual Trading Permit Holders 
and individual associated persons under three new categories of 
registration, as applicable. An individual Trading Permit Holder and/or 
individual associated person who is engaged in the securities business 
of a Trading Permit Holder (as described in Interpretation and Policy 
.06 to Rule 3.6A) is required to register as a Proprietary Trader (PT) 
in WebCRD and pass the related qualification examination, the Series 
56. An individual Trading Permit Holder or individual associated person 
is required to register as a Proprietary Trader Principal (TP) in 
WebCRD and pass the related qualification examination, the Series 24 
(and the prerequisite examination, the Series 56) if such individual 
acts in any of the following capacities on behalf of a Trading Permit 
Holder: (i) Officer; (ii) partner; (iii) director; (iv) supervisor of 
proprietary trading, market-making or brokerage activities; and/or (v) 
supervisor of those engaged in proprietary trading, market-making or 
brokerage activities with respect to those activities. Lastly, the 
Chief Compliance Officer (or individual performing similar functions) 
for a Trading Permit Holder or TPH organization that engages in 
proprietary trading, market-making or effecting transactions on behalf 
of a broker-dealer is required to register as a Proprietary Trader 
Compliance Officer (CT) in WebCRD and pass the related qualification 
examination, the Series 14 (and the prerequisite examination, the 
Series 56). This proposal does not add any new requirements but 
codifies the requirements previously prescribed by the Exchange in 
Regulatory Circular RG11-077.
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    \6\ See Securities Exchange Act Release No. 63314 (November 12, 
2010), 75 FR 70957 (November 19, 2010) (SR-CBOE-2010-084).
    \7\ See CBOE Regulatory Circular RG11-077 (issued June 28, 
2011).
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    CBOE is proposing to remove the language from Interpretation and 
Policy .05 to Rule 3.6A relating to acceptable substitute qualification 
requirements and instead incorporate those requirements into 
Interpretation and Policy .08(b). CBOE is proposing to include a chart 
in Interpretation and Policy .08(b) to Rule 3.6A to identify the 
required registration categories, the applicable qualification 
examinations as set forth above and the alternative acceptable 
qualifications for each of the three registration categories referenced 
above. The language proposing the alternative acceptable qualifications 
is substantially similar to the language CBOE is proposing to delete 
from Interpretation and Policy .05.\8\
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    \8\ See Securities Exchange Act Release No. 65147 (August 17, 
2011), 76 FR 52722 (August 23, 2011) (SR-CBOE-2011-075). See also 
Footnote 5.
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    Specifically, CBOE is proposing to permit the General Securities 
Representative (GS) registration (Series 7) to serve as an acceptable 
alternative qualification to obtain the Proprietary Trader (PT) 
registration.\9\ Similarly, CBOE is proposing to permit the General 
Securities Sales Supervisor (SU) registration (Series 9/10) and the 
General Securities Principal--Sales Supervisor Module registration 
(Series 23) to collectively serve as an alternative acceptable 
qualification to obtain the Proprietary Trader Principal (TP) 
registration. In addition, CBOE is proposing to permit the General 
Securities Principal (GP) registration (Series 24) or the Proprietary 
Trader Principal (TP) registration to serve as an alternative 
acceptable qualification to obtain the Proprietary Trader Compliance 
Officer (CT) registration. As noted above, the alternative 
qualifications for the Proprietary Trader Principal (TP) and 
Proprietary Trader Compliance Officer (CT) are currently acceptable 
under Interpretation and Policy .05 to Rule 3.6A. CBOE is proposing to 
incorporate this language into Interpretation and Policy .08 and remove 
it from Interpretation and Policy .05, as an individual maintaining 
these qualifications is not required to request a waiver from the 
Exchange, and Interpretation and Policy .05 relates to waiver requests.
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    \9\ The current Interpretation and Policy .05 provides that the 
Series 7 would be permitted as an acceptable substitute 
qualification examination for the Proprietary Trader (PT) 
registration category through December 31, 2011. CBOE is proposing 
to delete the reference to the December 31, 2011 deadline as part of 
the proposed deletions to Interpretation and Policy .05 to Rule 
3.6A. As noted above, CBOE is proposing to codify that the General 
Securities Representative (GS) registration (Series 7) will be 
permitted as an acceptable alternative qualification to obtain the 
Proprietary Trader (PT) registration category. While CBOE believes 
the Series 56 is a more applicable exam for those individuals 
engaged in proprietary trading, market-making and/or effecting 
transactions for broker-dealers, CBOE proposes to accept the General 
Securities Representative (GS) registration (Series 7) as an 
acceptable alternative qualification because the other applicable 
self-regulatory organizations permit individuals who maintain that 
registration to qualify for a Proprietary Trader (PT) registration 
and/or require the General Securities Representative (GS) 
registration (Series 7) to serve as the appropriate category of 
registration for proprietary traders. See, for example, NASD Rule 
1032 [sic] and NASDAQ OMX PHLX Rule 604.
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    Rule 3.6A(e) provides that ``any person whose registration has been 
revoked by the Exchange as a disciplinary sanction or whose most recent 
registration has been terminated for two or more years immediately 
preceding the date of receipt by the Exchange of a new application 
shall be required to pass a qualification examination appropriate to 
the category of registration * * *'' It should be noted that an 
individual Trading Permit Holder or individual associated person who 
has been registered in a category of registration that is considered an 
alternative acceptable qualification within the previous two years (and 
whose registration has not been revoked as a disciplinary sanction) 
shall meet the alternative acceptable qualification requirements for 
purposes of registering as a Proprietary Trader (PT), Proprietary 
Trader Principal (TP) or a Proprietary Trader Compliance Officer (CT). 
For example, an individual whose previous registration as a General 
Securities Representative (GS) terminated on December 31, 2011 may rely 
on that registration as an alternative acceptable qualification to 
obtain the Proprietary Trader (PT) registration upon employment as a 
proprietary trader of a Trading Permit Holder at any time within the 
two year period ending December 31, 2013.
    CBOE is also proposing to adopt Interpretation and Policy .09 to 
Rule 3.6A to state explicitly that any individual qualifying for a 
registration category pursuant to Rule 3.6A must satisfy all 
registration and qualification requirements prior to becoming engaged 
in the securities business of a Trading Permit Holder or, as 
applicable, prior to acting in a capacity on behalf of a Trading Permit 
Holder or TPH organization requiring such registration.

[[Page 30340]]

While the requirement exists today, CBOE is proposing to add this 
language to ensure that Trading Permit Holders and applicable 
associated persons are reminded of their obligation to register and 
qualify all applicable associated persons prior to engaging in the 
securities business of the Trading Permit Holder or, as applicable, 
prior to acting in a capacity on behalf of a Trading Permit Holder or 
TPH organization requiring such registration. For example, if an 
existing employee who currently conducts a public customer business on 
behalf of the Trading Permit Holder (and thus, maintains the General 
Securities Representative (GS) registration) wishes to engage in 
proprietary trading, that individual must be approved in WebCRD in the 
Proprietary Trader (PT) registration category prior to acting in the 
capacity of a proprietary trader on behalf of the Trading Permit Holder 
or TPH organization.
    Lastly, CBOE is proposing to clarify Interpretation and Policy .07 
to Rule 3.6A to (i) state explicitly that individuals who fall into one 
of the categories referenced in Interpretation and Policy .07 to Rule 
3.6A are subject to heightened qualification requirements \10\ and (ii) 
clarify that a Trading Permit Holder that conducts only proprietary 
trading and has 25 or fewer registered persons shall be required to 
have a minimum of one officer or partner who is registered in this 
capacity. Exchange staff has received multiple questions regarding 
whether a Trading Permit Holder that conducts proprietary trading only 
and that has 25 or fewer registered persons is required only to have 
one officer or partner who is registered as a Proprietary Trader 
Principal (PT). This is not a proper interpretation of the requirement. 
The approval order for SR-CBOE-2010-084 provides, in relevant part, 
``all individuals who engage in supervisory functions at the TPH 
organization's securities business, or who oversee associated persons 
of TPHs, must register and pass the relevant principal examination.'' 
\11\ The Exchange is not proposing to impose any additional obligations 
on Trading Permit Holders or TPH organizations but rather is clarifying 
this language in response to questions received relating to this 
provision.
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    \10\ Proposed Interpretation and Policy .08 to Rule 3.6A 
provides that individuals who fall into the categories set forth in 
Interpretation and Policy .07 to Rule 3.6A are required to register 
and qualify as a Proprietary Trader Principal (TP).
    \11\ See Securities Exchange Act Release No. 63314 (November 12, 
2010), 75 FR 70957 (November 19, 2010) (SR-CBOE-2010-084).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(c) of the 
Act,\12\ in general, and furthers the objectives of Section 6(c)(3) 
\13\ of the Act, which authorizes CBOE to prescribe standards of 
training, experience and competence for persons associated with CBOE 
and CBSX Trading Permit Holders, in that the proposed rule codifies the 
existing registration and qualification requirements (including 
alternative acceptable qualifications) for CBOE and CBSX Trading Permit 
Holders and TPH organizations. In addition, the proposed rule change is 
consistent with Section 6(c)(3) of the Act \14\ in that CBOE is 
proposing to permit the General Securities Representative (GS) 
registration (Series 7) to serve as an alternative acceptable 
qualification to register as a Proprietary Trader (PT). The additional 
changes to the rule text are clarifying changes and do not impose any 
additional obligations on Trading Permit Holders or their associated 
persons. CBOE believes the proposed changes are reasonable and set 
forth the appropriate qualifications for an individual Trading Permit 
Holder and individual associated person who is required to register 
under Exchange Rule 3.6A, including, but not limited to, Market-Makers, 
proprietary traders and individuals effecting transactions on behalf of 
other broker-dealers.
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    \12\ 15 U.S.C. 78f(c).
    \13\ 15 U.S.C. 78f(c)(3).
    \14\ 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 impose any 
burden on competition that is not necessary or appropriate in 
furtherance of 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 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, provided that the self-regulatory 
organization has given the Commission written notice of its intent to 
file 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, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 C.F.R. [sic] 240.19b-4(f)(6).
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    The Commission believes it is consistent with the public interest 
to waive the 30-day operative delay. Waiver of the operative delay will 
allow associated persons of CBOE firms who have passed examinations 
deemed acceptable by the Commission to register in the appropriate 
category and operate on CBOE without undue delay. Furthermore, it will 
provide additional clarity to CBOE's rules that a Trading Permit Holder 
that conducts only proprietary trading and has 25 or fewer registered 
persons is required to have a minimum of one officer or partner who is 
registered as a Proprietary Trader Principal (PT) but shall register 
all persons with certain functions as PTs.
    At any time within 60 days of the filing of such 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.

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-2012-039 on the subject line.

Paper Comments

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

[[Page 30341]]

All submissions should refer to File Number SR-CBOE-2012-039. 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of 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 Number SR-CBOE-2012-039 and should be 
submitted on or before June 12, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12305 Filed 5-21-12; 8:45 am]
BILLING CODE 8011-01-P