[Federal Register Volume 67, Number 2 (Thursday, January 3, 2002)]
[Notices]
[Pages 378-380]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-76]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No 34-45191; File No. SR-CBOE-2001-59]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the Chicago Board Options
Exchange, Incorporated Relating to the Amendment of CBOE Disciplinary
Rules 17.9 and 17.10 and the Addition of CBOE Disciplinary Rule 17.15
December 26, 2001.
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 December 6, 2001, the Chicago Board Options Exchange, Inc. (``CBOE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items, I, II, and III below, which Items have been prepared by the
CBOE. The CBOE filed Amendment No. 1 on December 17, 2001.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Christopher R. Hill, Attorney II, Office of
Enforcement, Legal Division, CBOE, to Sapna Patel, Attorney,
Division of Market Regulation, Commission, dated December 13, 2001
(``Amendment No. 1''). In Amendment No. 1, the CBOE made some
technical corrections to the proposed rule text.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to amend several provisions of its disciplinary
rules and add a new disciplinary rule.
Below is the text of the proposed rule change, as amended. Proposed
new language is italicized and proposed deletions are in brackets.
* * * * *
Chicago Board Options Exchange, Incorporated Rules
Chapter XVII--Discipline
Rule 17.9. Decision
Following a hearing conducted pursuant to Rule 17.6 of this
Chapter, the Panel shall issue a decision in writing, based solely on
the record, determining whether the Respondent has committed a
violation and imposing the sanction, if any, therefor. Where the Panel
is not composed of at least a majority of the members of the Business
Conduct Committee, its determination shall be automatically reviewed by
a majority of the Committee, which may affirm, reverse or modify in
whole or in part or may remand the matter for additional findings or
supplemental proceedings. Such modification may include an increase or
decrease of the sanction. The decision shall include a statement of
findings and conclusions, with the reasons therefor, upon all material
issues presented on the record. Where a sanction is imposed, the
decision shall include a statement specifying the acts or practices in
which the Respondent has been found to have engaged and setting forth
the specific provision of the Securities Exchange Act of 1934, as
amended, rules and regulations promulgated thereunder, constitutional
provisions, by-laws, rules, interpretations or resolutions of the
Exchange of which the acts are deemed to be in violation. The
Respondents and the Office of Enforcement shall be promptly sent a copy
of the decision. After Board review pursuant to Rule 17.10, or the time
for such review has expired, the decision will be considered final, and
the Exchange shall publish a summary of the decision in the Exchange
Bulletin.
Rule 17.10. Review
(a)(1) Petition. Both t[T]he Respondent and the Office of
Enforcement shall have 15 days after service of notice of any[a]
decision made pursant to Rule 17.9 of this Chapter to petition for
review of the decision by filing a copy of the petition with the
Secretary of the Exchange (``Secretary'') and with all other parties to
the hearing [the Exchange's Office of Enforcement]. Such petition shall
be in writing and shall specify the findings and conclusions to which
exceptions are taken together with reasons for such exceptions. Any
objections to a decision not specified by written exception shall be
considered to have been abandoned.
(2) Written Submissions. Within 15 days after a
[Respondent's]petition for review has been filed with the Secretary of
the Exchange pursuant to paragraph (a)(1) of this Rule, the other
parties to the hearing[Exchange staff] may each submit to the Secretary
a written response to the petition. A copy of the response must be
served upon the petitioner[Respondent]. The petitioner[A Respondent]
has 15 days from the service of the response to file a reply with the
Secretary and the other parties [Office of Enforcement].
(b) Conduct of Review. The review shall be conducted by the Board
or a committee of the Board composed of at least three Directors whose
decision must be ratified by the Board. Any Director who participated
in a matter before the Business Conduct or other Committee may not
participate in any review of that matter by the Board. Unless the Board
shall decide to open the record for the introduction of evidence or to
hear argument, such review shall be based solely upon the record and
the written exceptions filed by the parties. New issues may be raised
by the Board; the parties to the hearing[Respondents] shall be given
notice of and any opportunity to address any such new issues. The Board
may affirm, reverse or modify, in whole or in part, the decision of the
Business Conduct Committee. Such modification may include an increase
or decrease of the sanction. The decision of the Board shall be in
writing, shall be promptly served on the Respondent and the Office of
Enforcement, and shall be final.
(c) Review on Motion of Board. The Board may on its own initiative
order review of a decision made pursuant to Rule 17.7 or 17.9 of this
Chapter within 30 days after notice of the decision has
[[Page 379]]
been served on the Respondent and the Office of Enforcement. Such
review shall be conducted in accordance with the procedure set forth in
paragraph (b) of this Rule.
(d) No change.
Rule 17.15. Ex Parte Communications
Members and persons associated with members shall not make or
knowingly cause to be made an ex parte communications with any member
of the Board with the intent to influence the outcome of any pending
investigation or disciplinary proceeding. Members of the Board shall
not make a knowingly cause to be made an ex parte communication with
any members or persons associated with members with the intent to
influence the outcome of any pending investigation or disciplinary
proceeding. No violation of this Rule shall be deemed to occur if the
ex parte communication deals solely with procedural matters rather than
the merits of the investigation or proceeding.
Interpretations and Policies:
.01 ``Ex parte communication'' means an oral or written
communication made without notice to all parties, that is, regulatory
staff and Subjects of investigations or Respondents in proceedings. A
written communication is ex parte unless a copy has been previously or
simultaneously delivered to all interested parties. An oral
communication is ex parte unless it is made in the presence of all
interested parties except those who, on adequate prior notice, declined
to be present.
* * * * *
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 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
a. Ex Parte Communications With Board of Director (``Board'')
Members Prohibited
Currently, Exchange Rule 17.4(d) prohibits members or persons
associated with members from making or causing ex parte communications
with any member of the Business Conduct Committee (``BBC'') concerning
the merits of any matter pending under the disciplinary rules of the
Exchange. This prohibition is to eliminate the potential that such
communications might somehow influence the outcome of an investigation
or enforcement matter. The Exchange believes that Exchange disciplinary
rules should also forbid ex parte communications with members of the
Exchange Board. Such communications are already prohibited by other
self-regulatory organizations.\4\ Therefore, the exchange proposes to
add a new Exchange Rule 17.15, ``Ex Parte Communications,'' which would
prohibit ex parte communications with members of the Board that are
made with the intent to influence the outcome of any pending
investigation or disciplinary proceeding. The Exchange represents that
proposed Exchange Rule 17.15 would expressly create a safe harbor for
communication dealing solely with procedural matters rather than the
merits of the investigation or proceeding. The text of the current
Interpretation and Policy .01 to Exchange Rule 17.4(d) defining ``Ex
Parte Communications'' will be duplicated as Interpretation and Policy
.01 of proposed Exchange Rule 17.15.
---------------------------------------------------------------------------
\4\ See American Stock Exchange LLC Exchange Disciplinary
Proceedings Rule 11(a); National Association of Securities Dealers,
Inc. (``NASD'') Rule 9143(a); and Pacific Exchange, Inc. Rule
10.3(a).
---------------------------------------------------------------------------
b. Exchange Right to Appeal
Exchange Rule 17.10(a) permits a Respondent in a disciplinary
matter to appeal a decision of the BCC to the Board, but does not grant
the Exchange's Office of Enforcement (``OOE'') a similar right of
appeal. Again, the Exchange believes that its OOE should have such a
right, both to appeal factual findings that the OOE thinks may have
been in error, as well as to appeal disciplinary sanctions that the OOE
deems insufficient. Such appeals are already authorized at other
exchanges.\5\ Therefore, the Exchange proposes to amend Exchange Rules
17.9 and 17.10 to give the OOE and the Respondent equivalent rights in
the appellate process.
---------------------------------------------------------------------------
\5\ See New York Stock Exchange, Inc. Rule 476(f); NASD Rule
9311; and Securities Exchange Act Release No. 43554 (November 14,
2001), 65 FR 69975 (November 21, 2001) (File No. SR-Amex-00-22).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change described above
is consistent with the provisions of section 6(b) \6\ of the Act, in
general, and specifically furthers the objectives of sections
6(b)(1),\7\ 6(b)(6),\8\ and 6(b)(7) \9\ of the Act, in particular, in
that it will enhance the ability of the Exchange to enforce compliance
by its members and persons associated with its members with provisions
of the Act, the rules and regulations thereunder, and the rules of the
Exchange. It will help ensure that members and persons associated with
members are appropriately disciplined when they violate those
provisions.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(1).
\8\ 15 U.S.C. 78f(b)(6).
\9\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition 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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be 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, as amended, in consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-0609. Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the
[[Page 380]]
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 inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
CBOE. All submissions should refer to File No. SR-CBOE-2001-59 and
should be submitted by January 24, 2002.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-76 Filed 1-2-02; 8:45 am]
BILLING CODE 8010-01-M