[Federal Register: November 21, 2002 (Volume 67, Number 225)]
[Notices]
[Page 70275-70276]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21no02-144]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46823; File No. SR-CBOE-2002-39]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Amendment Nos. 1 and 2 Thereto by the Chicago Board Options
Exchange, Inc. to Make Certain Changes Pertaining to the Enforcement of
Trading Conduct and Decorum Policies
November 13, 2002.
On July 15, 2002, the Chicago Board Options Exchange, Inc.
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and rule 19b-4
thereunder,\2\ a proposed rule change relating to the enforcement of
trading conduct and decorum policies. On August 30, 2002, CBOE
submitted Amendment No. 1 to the proposed rule change.\3\ On September
17, 2002, CBOE submitted Amendment No. 2 to the proposed rule
change.\4\ The proposed rule change, as amended, was published for
comment in the Federal Register on October 11, 2002.\5\ The Commission
received no comments on the amended proposal. This order approves the
proposed rule change, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See form 19b-4 received on August 30, 2002 (``Amendment No.
1'').
\4\ See letter from Christopher R. Hill, Attorney II, Legal
Division, CBOE, to Nancy Sanow, Division of Market Regulation
(``Division''), Commission, dated September 16, 2002 (``Amendment
No. 2'').
\5\ See Securities Exchange Act Release No. 46600 (October 4,
2002), 67 FR 63480.
---------------------------------------------------------------------------
The Exchange proposes to amend CBOE rule 6.20(c) (Admission to and
Conduct on the Trading Floor--Fines Imposed by Floor Officials) to
authorize two Floor Officials, in consultation with a designated senior
executive officer of the Exchange, to summarily exclude a member or
person associated with a member from the Exchange premises for not
longer than the remainder of the trading day for any violation of the
Exchange's trading conduct and decorum policies that is classified as a
Class A offense, except for those Class A offenses specified by
Exchange Regulatory Circulars \6\ as not qualifying the offender for
summary exclusion. The proposed rule will enable an excluded member or
associated person to request reinstatement to the Trading Floor from
Floor Officials after a sufficient ``cooling off period'' has elapsed.
---------------------------------------------------------------------------
\6\ Currently, only the proposed Regulatory Circular specifies
which Class A offenses do, and which Class A offenses do not qualify
the offender for summary exclusion. CBOE will file any additional
Regulatory Circulars that specify which Class A offenses do or do
not qualify the offender for summary exclusion with the Commission
as a proposed rule change. Telephone call between Christopher R.
Hill, Attorney II, Legal Division, CBOE, and Jennifer Lewis,
Attorney, Division, Commission, on November 13, 2002.
---------------------------------------------------------------------------
Class A offenses are the most serious offenses regarding trading
conduct and decorum policies, including but not limited to, violations
such as physical violence (e.g., shoving or fighting), unbusinesslike
conduct,\7\ harassment, failure to abide by a floor official
determination, or property damage. Most Class A offenses affect the
safety or security of personnel and/or property on the Exchange in ways
that may be ameliorated by temporarily excluding the offender from
Exchange premises. The Exchange also proposes that members be summarily
excluded from Exchange premises for enabling or assisting a suspended
member or associated person to gain improper access to the floor, and
failing to supervise a visitor. As specified in the proposed Regulatory
Circular, the Exchange proposes to distinguish three Class A offenses
as not qualifying the offender for summary exclusion. These are (1)
Failure to Attend Exchange Mandated Educational Training; (2) Effecting
or Attempting to Effect a Transaction with No Public Outcry; and (3)
Violation of CBOE Rule 8.51 (Firm Quote). According to the Exchange, it
did not classify these offenses as qualifying for summary expulsion
because it believes that, unlike the other Class A offenses, they do
not raise
[[Page 70276]]
significant issues of safety or security at the Exchange.
---------------------------------------------------------------------------
\7\ In general, ``unbusinesslike conduct'' is conduct, other
than harassment, that disrupts trading. Telephone call between
Christopher R. Hill, Attorney II, Legal Division, CBOE, and Jennifer
Lewis, Attorney, Division, Commission, on September 30, 2002.
---------------------------------------------------------------------------
The Exchange also proposes to amend CBOE rule 17.50(g)(6)
(Imposition of Fines for Minor Rules Violations--Violations of Trading
Conduct and Decorum Policies) to reflect the incorporation into the
fine policies of specified higher fine levels for ``subsequent''
offenses. For example, the amended provision would enable the
imposition of the fine authorized for a Class A ``subsequent'' offense
to be imposed for a first, second or third Class A offense, if such is
deemed warranted under the circumstances in the view of two Floor
Officials.\8\ Generally, however, the two Floor Officials will impose
fines based upon the number of the offense that has occurred within a
rolling 12-month period, except for Firm Quote violations, which will
have a 24-month look back period.
---------------------------------------------------------------------------
\8\ The amended provision would also enable the imposition of
the fine authorized for a Class B ``subsequent'' offense to be
imposed for a first or second Class B offense, if such is deemed
warranted under the circumstances in the view of two Floor
Officials.
---------------------------------------------------------------------------
Finally, the Exchange proposes to include in the proposed
Regulatory Circular the fines that may be imposed under CBOE rule 17.50
for violations of CBOE rule 6.20.\9\ Any person against whom a fine is
imposed pursuant to CBOE rule 17.50(g) may contest that fine before the
applicable CBOE Committee.\10\
---------------------------------------------------------------------------
\9\ The proposed Regulatory Circular will supersede and replace
current CBOE Regulatory Circular RG 98-123. The proposed Regulatory
Circular does not include three types of offenses that were set
forth in Regulatory Circular RG 98-123: Disruptive Announcements of
Stock Prints, Failure to Abide by Floor Official Request for
Information; and Book Priority Determinations. According to the
Exchange, these offenses are either no longer necessary or covered
by other rules.
\10\ See paragraph (4) of the proposed Regulatory Circular.
---------------------------------------------------------------------------
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
\11\ and, in particular, the requirements of section 6 of the Act \12\
and the rules and regulations thereunder. Specifically, the Commission
finds that the proposed rule change is consistent with sections 6(b)(5)
\13\ and 6(b)(7) \14\ of the Act because the proposed rule change
should protect investors and the public interest by enhancing the
effectiveness and fairness of the Exchange's disciplinary procedures.
---------------------------------------------------------------------------
\11\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(5).
\14\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------
In particular, the Commission believes having the authority to
temporarily exclude disruptive or potentially dangerous rule violators
from the Exchange premises should assist the Exchange in defusing
volatile situations, safeguarding trading floor personnel and
facilities, and minimizing disruptions to the maintenance of fair and
orderly markets. The Commission also believes the new Regulatory
Circular sets forth appropriate fine levels for violations of Trading
and Decorum Policies, which should deter violations of the Exchange's
rules.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-CBOE-2002-39), as amended,
is approved.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
---------------------------------------------------------------------------
\16\ 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-29540 Filed 11-20-02; 8:45 am]
BILLING CODE 8010-01-P