[Federal Register: October 31, 2003 (Volume 68, Number 211)]
[Notices]
[Page 62122-62126]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc03-110]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48702; File No. SR-CBOE-2003-36])
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc. To Adopt a New Rule
Relating to Trading Crowd Space Dispute Resolution Procedures
October 27, 2003.
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 October 20, 2003, the Chicago Board Options Exchange, Inc. (``CBOE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the CBOE. 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
The CBOE proposes to adopt new CBOE Rule 24.21, ``Index Crowd Space
Dispute Resolution Procedures,'' which establishes guidelines and
procedures for resolving disputes between members over the right to
occupy a particular space in an index option trading crowd. In
addition, the CBOE proposes to revise its fee schedule to include a
proposed trading crowd dispute resolution fee.
The text of new CBOE Rule 24.21, and the revised fee schedule,
appear below. Proposed new language is italicized.
* * * * *
Chicago Board Options Exchange, Incorporated
Rules
CHAPTER XXIV
Index Options
* * * * *
Index Crowd Space Dispute Resolution Procedures
Rule 24.21
This Rule applies only to members who trade OEX, SPX, DJX and DIA
options on the floor of the Exchange, or who trade any other index
option not located at a station shared with equity options as
determined by the appropriate Floor Procedure Committee.
(a) Crowd Space Disputes Subject to Resolution. A member may
request the assistance of the Exchange to resolve a dispute over the
ability to use a trading space in an index option trading crowd where
the space is currently being occupied by another member, or where the
space has been abandoned or unoccupied, and more than one member now
wish to trade there.
(b) Requesting the Assistance of the Exchange. A member shall
request the assistance of the Exchange in resolving a crowd space
dispute by calling the Office of the Secretary of the Exchange, which
shall promptly refer the request in writing to the Chairman of the
appropriate Floor Procedure Committee that governs trading in the
trading station where the dispute has arisen (hereafter ``the
Chairman'').
(c) Mediation by the Chairman. When the Chairman receives the
request from the Office of the Secretary, the Chairman or an individual
designated by the Chairman (hereafter ``the Chairman's designee'')
shall attempt to mediate an amicable resolution of the dispute among
the members involved. All members involved in the dispute shall
cooperate with the Chairman or the Chairman's designee in his efforts
to mediate.
(d) Temporary Resolution. If the Chairman, the Chairman's designee,
or two Floor Officials determine that the maintenance of a fair and
orderly market requires an immediate temporary resolution of a crowd
space dispute, the Chairman, the Chairman's designee, or two Floor
Officials in consultation with the Chairman or the Chairman's designee
may instruct the
[[Page 62123]]
parties to the dispute on where to stand until the outcome of further
proceedings under this Rule. This temporary resolution may be revised
by the individual(s) issuing it, but is otherwise not subject to
appeal.
(e) Hearing Requests and Hearing Fee. If the Chairman or the
Chairman's designee is unable to mediate an amicable resolution of the
dispute among the members involved, any of them may request a hearing
in the dispute by completing and submitting a Hearing Request form to
the Office of the Secretary along with the payment of a Hearing Fee.
The amount of the Hearing Fee shall be a minimum of one thousand
dollars ($1,000) per member, and may be greater under certain
circumstances set forth in this subsection. The Exchange may increase
the Minimum Hearing Fee periodically pursuant to Exchange Rule 2.22 in
order to maintain the Minimum Hearing Fee at a level that the Exchange
deems sufficient to encourage amicable resolution of crowd space
disputes. Upon receipt of the Hearing Request form and Hearing Fee, the
Office of the Secretary shall instruct the Exchange to collect the
appropriate Hearing Fee from each additional party to the dispute
pursuant to Exchange Rule 3.23. For any party who has previously been a
party to a crowd dispute resolution hearing within the past twelve
months, the Hearing Fee that party will pay for being a party to a
subsequent hearing within twelve months of the last hearing will be
twice the Hearing Fee that party paid for the previous hearing. After
the hearing on the dispute is held and all rights of appeal are
exhausted, only the prevailing party in the dispute shall obtain a
refund of the Hearing Fee from the Exchange. A prevailing party who
becomes a party in a subsequent hearing within twelve months of the
hearing in which he prevailed shall not pay a higher Hearing Fee
because of the hearing in which he prevailed.
(f) Limitations on Hearing Requests. No member may request a
hearing involving the same parties that participated in a prior hearing
unless the requesting member makes an adequate preliminary showing in
his subsequent hearing request that new circumstances warrant another
hearing involving the same parties, based upon the Crowd Dispute
Resolution Guidelines contained in this Rule. The Chairman shall
exercise sole and final judgment as to the adequacy of this preliminary
showing.
(g) CSDR Panel. After the member submits his Hearing Fee to the
Office of the Secretary, the Chairman shall select a Crowd Space
Dispute Resolution Panel (``Panel'') composed of seven Exchange members
to hear and resolve the dispute. The Chairman shall select two members
of the Panel from members of the Chairman's Floor Procedure Committee
(other than the Chairman himself), and four members of the Panel from
members of the Exchange who are not members of the Chairman's Floor
Procedure Committee. Two of the latter four members of the Panel shall
be members who trade in the trading station where the dispute has
arisen and two shall be members who do not trade in the trading station
where the dispute has arisen. In selecting the Panel members who are
not members of the Chairman's Floor Procedure Committee, preference
will be given to members who serve on another Floor Procedure Committee
or a Market Performance Committee. Notwithstanding such preference, the
selection of all Panel members will be according to the sole discretion
of the Chairman. The seventh Panel member shall be the Chairman of the
Floor Officials Committee, or another member of the Floor Officials
Committee designated by the Chairman of the Floor Officials Committee.
The Chairman shall also designate the Panel member who shall serve as
the Panel Chairman. In the event the Chairman must recuse himself from
the dispute (see subsection (h) below), then the Vice Chairman of the
Chairman's Committee will designate the Panel and the Panel Chairman.
If the Vice-Chairman of the Chairman's Committee must also recuse
himself, then the Vice-Chairman of the Exchange will designate the
Panel and the Panel Chairman.
(h) Recusals and Challenges of Panel Members. The Exchange's
recusal rules and policies shall apply with respect to participation by
the Chairman, Panel members, and others in the crowd space dispute
resolution process pursuant to this Rule. Parties to the dispute shall
be informed of the composition of the Panel, as well as the date, time,
and place of the hearing, at least 72 hours prior to the scheduled
hearing in the matter by the Chairman. A Party may challenge the
selection of one or more Panel members no later than 48 hours prior to
the scheduled hearing in the matter by providing to the Chairman or the
Panel Chairman a brief written statement explaining why the challenged
Panel member has a conflict of interest or any other reason that would
make the Panel member unable to participate in a fair and impartial
manner. Notice of any replacement Panel member will be provided to the
parties no later than 24 hours prior to the scheduled hearing. A Party
may challenge the selection of any replacement Panel member no later
than 8 hours prior to the scheduled hearing. The Chairman shall have
sole and final authority to rule on any challenge and replace any Panel
member.
(i) Hearings. The hearing shall be held at such time and place as
may be designated by the Panel. In hearings before the Panel, the
Parties to the dispute will be allowed to present witnesses and/or
documentary evidence to argue their claim, provided that they have
furnished a list of all such witnesses and a copy of all such documents
to the Panel Members and to all opposing parties at least 48 hours
prior to the date of the hearing. The legal counsel to the Chairman's
Committee, or another attorney designated by the legal counsel to the
Chairman's Committee, shall act as legal counsel to the Panel. The
Panel shall determine all questions concerning admissibility of
evidence, and shall otherwise regulate the conduct of the hearing.
Formal rules of evidence shall not apply. The Panel shall decide any
issues of fact based on the evidence admitted at the hearing, and shall
apply the Crowd Space Dispute Resolution Guidelines set forth below to
each dispute. The party receiving at least a majority vote by the Panel
will prevail.
(j) Crowd Space Dispute Resolution Guidelines. In resolving a crowd
space dispute, the Panel's guiding principles shall be: (i) to
determine what shall ``best promote a liquid and competitive market'',
(ii) to give no preference to market-makers, floor brokers, or
representatives of DPMs merely because of their status as such, and
(iii) to recognize and apply the principles that no member has any
ownership ``rights'' in any crowd space, and that no member may sell or
assign any supposed ``right'' to use a particular space in a trading
crowd. The Panel shall examine the following factors and determine, in
the Panel's sole judgment, how each relates to each of the parties
competing for the space (the numerical ranking of the factors does not
necessarily indicate the relative importance to be given to any
particular factors in any particular case):
1. Quality and Quantity of Business:
The Panel shall review the quality and quantity of business that
each party to the dispute conducts. Evidence of the quality and
quantity of each party's business shall include, but is not limited to,
evidence of the average daily number of contracts traded, the
percentage of transactions that are traded in-person,
[[Page 62124]]
participation on RAES, and the typical size of markets made by each
party.
2. Tenure in the trading crowd:
``Tenure'' refers to the length of time each party has spent in the
trading crowd where the space in dispute is located.
3. Association/affiliation with a member firm that has occupied the
space:
If a nominee or employee of a member firm has had to leave a space,
then the Panel will consider to what extent there will be a negative
impact on the trading in the crowd if another nominee of the member
firm is or is not permitted to continue to use the space.
4. Need for accommodation:
The Panel will consider to what extent each party's existing
business is already satisfied by their existing space or whether the
new space is needed to facilitate either existing or anticipated new
business.
5. Proximity of competing parties:
The Panel will give consideration to whether any party stood near
the spot in question, or whether any party occupied the space in the
past.
6. Sight lines or Access:
The Panel will consider to what extent each party needs sight lines
or access to other parts of the crowd or the trading floor.
7. Technology considerations:
The Panel will consider to what extent each party's needs may be
satisfied by trading technology or communication technology.
8. Equitable considerations:
In addition to the above factors, the Panel will consider any other
factor it deems relevant in order to achieve a fair and equitable
resolution.
(k) Panel Decision. The Panel Chairman shall communicate the
Panel's decision to the Chairman and all parties to the dispute. The
Panel decision shall take effect on the first trading day after all
parties have been notified of the decision by the Panel Chairman. The
Panel shall also promptly provide a written Statement of Decision
explaining the reason(s) for its decision. However, the effective date
of the Panel's decision shall not be postponed until the release of the
Statement of Decision. If the Panel makes its decision about a party's
right to use a space contingent upon that party's satisfaction of
certain conditions, those conditions shall be set forth in the
Statement of Decision.
(l) Appeal. Any party may appeal the decision of the Panel to the
Appeals Committee pursuant to Chapter XIX of the Exchange Rules by
filing an Application pursuant to CBOE Rule 19.2(a) within thirty days
after the date of release of the Panel's Statement of Decision. The
Panel decision, however, shall remain in effect during any such appeal.
(m) Failure to Comply. Any member or person associated with a
member who fails to comply with a decision reached through these Crowd
Space Dispute Resolution Procedures, or who otherwise fails to comply
with any provision of this CBOE Rule 24.21, may be subject to
disciplinary proceedings in accordance with Chapter 17 of the CBOE
Rules for violation of this rule and Rule 4.1 (``Just and Equitable
Principles of Trade'').
* * * * *
FEE SCHEDULE
1. -15. Unchanged.
16. MISCELLANEOUS
Crowd Space Dispute Resolution Hearing Fee (per hearing, per member
(10)): $1,000
17-18. Unchanged.
MEMBER TRANSACTION FEE POLICIES AND REBATE PROGRAMS
Unchanged.
Footnotes
(1)-(9) Unchanged.
(10) The Crowd Space Dispute Resolution Hearing Fee is $1,000 per
hearing for each party to the dispute and will escalate under certain
circumstances pursuant to CBOE Rule 24.21(e). After the hearing is held
and all rights of appeal are exhausted, the prevailing party in the
dispute shall obtain a refund of the Hearing Fee from the Exchange.
* * * * *
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 and discussed
any comments it received on the proposed rule. 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
Background
CBOE proposes to adopt new CBOE Rule 24.21, which establishes
guidelines to resolve disputes concerning the right of Exchange members
to occupy a certain space in an index option trading pit and procedures
through which these disputes may be resolved. Over the past several
years, an increase in the trading volume and the size of trading crowds
for certain index options has created a lack of trading spots in
certain trading pits. Up until this point, the Exchange has never
adopted any formal policy about the right of members to occupy
particular spaces on the trading floor. In the past, members have been
able to resolve amicably disputes concerning the right to trade from a
particular location in the pit. Also, the Exchange's SPX Floor
Procedure Committee has been successful in mediating such disputes when
they have occurred in the SPX trading crowd.
The Exchange believes it is appropriate at this time to adopt a
rule to give the Chairman of the appropriate Floor Procedure Committee
(``FPC'') the authority to mediate, and if necessary, to convene
hearing panels of members to resolve space disputes in index option
trading crowds, and the Exchange the ability to enforce the results of
any such mediation. Proposed CBOE Rule 24.21 shall apply only to
members who trade OEX, SPX, DJX and DIA options on the floor of the
Exchange, or who trade any other index option not located at a station
shared with equity options as determined by the appropriate FPC.
Mediation by the FPC Chairman
The proposed rule provides that a member may seek the assistance of
the Exchange to resolve a crowd space dispute and the Chairman of the
appropriate FPC or his designee shall attempt to mediate an amicable
resolution of the dispute among the members involved.\3\ The proposed
rule also provides for immediate temporary resolutions of crowd space
disputes pending the outcome of further proceedings under the rule.\4\
The proposed rule is designed to encourage amicable, mediated
settlements, as opposed to hearings, by requiring mediation first by
the FPC Chairman (or his designee) before members may resort to the
hearing process provided for under the proposed rule.
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\3\ See paragraphs (a), (b), and (c) of proposed CBOE Rule
24.21.
\4\ See proposed CBOE Rule 24.21(d).
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Initiation of Hearings
In the event members cannot come to a resolution on the use of a
trading space, a member may initiate a hearing by completing and
submitting a Hearing
[[Page 62125]]
Request form to the Office of the Secretary along with the payment of a
Hearing Fee, which shall be a minimum of one thousand dollars ($1,000)
per member.\5\ The Exchange also proposes to amend the CBOE Fee
Schedule to provide for a Crowd Space Dispute Resolution Hearing Fee of
$1,000. Hearing fees will escalate for those members who frequently use
the hearing process to resolve such disputes, again with the purpose of
encouraging amicable, mediated settlements. Repetitive, meritless
claims involving the same parties are prohibited.\6\
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\5\ See proposed CBOE Rule 24.21(e).
\6\ See proposed CBOE Rule 24.21(f).
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Hearing Panel
The FPC Chairman shall select a Crowd Space Dispute Resolution
Panel (``Panel'') composed of seven Exchange members to hear and
resolve the dispute.\7\ The Chairman shall select two members of the
Panel from members of the Chairman's FPC (other than the Chairman
himself), and four members of the Panel from members of the Exchange
who are not members of the Chairman's FPC. Two of the latter four
members of the Panel shall be members who trade in the trading station
where the dispute has arisen and two shall be members who do not trade
in the trading station where the dispute has arisen. In selecting the
Panel members who are not members of the Chairman's FPC, preference
will be given to members who serve on another Floor Procedure Committee
or a Market Performance Committee. The seventh Panel member shall be
the Chairman of the Floor Officials Committee, or another member of the
Floor Officials Committee designated by the Chairman of the Floor
Officials Committee. The Exchange's recusal rules and policies shall
apply with respect to participation by the Chairman, Panel members, and
others in the crowd space dispute resolution process under the proposed
rule.\8\
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\7\ See proposed CBOE Rule 24.21(g).
\8\ See proposed CBOE Rule 24.21(h).
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Guidelines for Resolving Disputes
In resolving a crowd space dispute, the Panel's guiding principles
shall be: (i) To determine what shall ``best promote a liquid and
competitive market'', (ii) to give no preference to market-makers,
floor brokers, or representatives of DPMs merely because of their
status as such, and (iii) to recognize and apply the principles that no
member has any ownership ``rights'' in any crowd space, and that no
member may sell or assign any supposed ``right'' to use a particular
space in a trading crowd.\9\ The Panel will examine eight factors (set
forth in proposed CBOE Rule 24.21(j)) and determine, in the Panel's
sole judgment, how each relates to each of the parties competing for
the space.
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\9\ See proposed CBOE Rule 24.21(j).
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Procedures for Hearings
The hearing shall be held at such time and place as may be
designated by the Panel. In hearings before the Panel, the Parties to
the dispute will be allowed to present witnesses and/or documentary
evidence to argue their claim. The legal counsel to the Chairman's
Committee, or another attorney designated by the legal counsel to the
Chairman's Committee, shall act as legal counsel to the Panel. The
Panel shall determine all questions concerning admissibility of
evidence, and shall otherwise regulate the conduct of the hearing.
Formal rules of evidence shall not apply. The Panel shall decide any
issues of fact based on the evidence admitted at the hearing, and shall
apply the Crowd Space Dispute Resolution Guidelines set forth in
proposed CBOE Rule 24.21(j). The party receiving at least a majority
vote by the Panel will prevail.\10\
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\10\ See proposed CBOE Rule 24.21(i).
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The Panel Chairman shall communicate the Panel's decision to the
Chairman of the Exchange and all parties to the dispute. The Panel
decision shall take effect on the first trading day after all parties
have been notified of the decision by the Panel Chairman. The Panel
shall also promptly provide a written Statement of Decision explaining
the reason(s) for its decision.\11\ Any party may appeal the decision
of the Panel to the Appeals Committee pursuant to Chapter XIX of the
Exchange Rules.\12\ Any member or person associated with a member who
fails to comply with a decision reached through proposed CBOE Rule
24.21, or who otherwise fails to comply with any provision of the
proposed rule, may be subject to disciplinary proceedings.\13\
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\11\ See proposed CBOE Rule 24.21(k).
\12\ See proposed CBOE Rule 24.21(l).
\13\ See proposed CBOE Rule 24.21(m).
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2. Statutory Basis
By establishing guidelines and procedures for the amicable
resolution of pit space disputes, CBOE believes the proposed rule
change is consistent with and furthers the objectives of section
6(b)(5) of the Act,\14\ in that it is designed to promote just and
equitable principles of trade, remove impediments to and perfect the
mechanisms of a free and open market, and to protect investors and the
public interest.
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\14\ 15 U.S.C. 78f(b)(5).
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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 changes.
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
is 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 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-2003-36 and should be
submitted by November 21, 2003.
[[Page 62126]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27461 Filed 10-30-03; 8:45 am]
BILLING CODE 8010-01-P