[Federal Register: May 15, 2003 (Volume 68, Number 94)]
[Notices]
[Page 26363-26364]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15my03-117]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47818; File No. SR-CBOE-2003-02]
Self-Regulatory Organizations; Order Granting Approval of
Proposed Rule Change by the Chicago Board Options Exchange, Inc.,
Relating to the Reporting of Other Affiliations of Associated Persons
to the Exchange
May 8, 2003.
I. Introduction
On January 9, 2003, 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 a member's obligation
to report other affiliations of its Associated Persons (``APs'') to the
Exchange. Notice of the proposed rule change was published for comment
in the Federal Register on February 5, 2003.\3\ The Commission received
one comment letter on the proposed rule change.\4\ On March 10, 2003,
CBOE filed Amendment No. 1 to the proposed rule change.\5\ This order
approves the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 47290 (January 30,
2003), 68 FR 5945 (``Notice'').
\4\ March 6, 2003 letter from Brian C. Underwood, Senior Vice
President--Director of Compliance, A.G. Edwards & Sons, Inc., to
Jonathan Katz, Secretary, Commission. The commenter expressed
support for the proposed rule change.
\5\ In Amendment No. 1, CBOE added a comma immediately following
the phrase ``Financial / Operations Principal'' in revised CBOE rule
9.4. This grammatical correction clarifies the scope of application
of rule 9.4(b) to Registered Options Principals and Sales
Supervisors, in accordance with the intent of the proposal, as
described in the Notice. This is a technical amendment to the
proposed rule change that does not require notice and comment. See
e-mail from Jaime Galvan, Attorney, CBOE, to Andrew Shipe, Special
Counsel, Division of Market Regulation, Commission, dated March 10,
2003 (``Amendment No. 1'').
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II. Description of the Proposed Rule Change
A. Text of the Proposed Rule Change
The Exchange proposes to amend its rules requiring members to
report outside business affiliations of their personnel to the
Exchange. Below is the text of the proposed rule change. Proposed new
language is italicized. Proposed deletions are in [brackets].\6\
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\6\ The text of the proposed rule change was published in the
notice. This publication of rule text corrects a typographical error
in the notice to show that the phrase ``and Registered
Representative'' in revised CBOE rule 9.4(b) should have been marked
as deleted by placing it in [brackets].
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* * * * *
Chicago Board Options Exchange, Inc.
Rules
* * * * *
Rule 3.6A. Qualification and Registration of Certain Associated Persons
(a) Financial/Operations Principal. Each individual member or
member organization subject to Exchange Act rule 15c3-1 shall designate
a Financial/Operations Principal. The duties of a Financial/Operations
Principal shall include taking appropriate actions to assure that the
member complies with applicable financial and operational requirements
under the rules and the Exchange Act, including but not limited to
those requirements relating to the submission of financial reports and
the maintenance of books and records. Each Financial/Operations
Principal is required to have successfully completed the Financial and
Operations Principal Examination (Series 27 Exam). Each Financial/
Operations Principal designated by a member shall be registered in that
capacity with the Exchange in a form and manner prescribed by the
Exchange. A Financial/Operations Principal of a
[[Page 26364]]
member may be a full-time employee [of the member], [or with the prior
written approval of the Exchange, may be] a part-time employee or
independent contractor of the member. Member firms for which the
Exchange is the Designated Examining Authority (``DEA'') must provide
prompt written notice to the Exchange's Department of Financial and
Sales Practice Compliance for each person designated as a Financial/
Operations Principal reporting whether such person is a full-time
employee, part-time employee, independent contractor or has any outside
business affiliations.
(b) No change.
* * * Interpretations and Policies:
.01--.03 No change.
* * * * *
CHAPTER IX
* * * * *
Doing Business with the Public
Rule 9.4. Other Affiliations of Registered [Representatives] Associated
Persons
(a) No person associated with a member in any registered capacity
shall be employed by, or accept compensation from, any other person or
entity as a result of any business activity, other than a passive
investment, outside the scope of his/her relationship with his/her
employer firm, unless the person has provided prompt written notice to
the member and has received prior written consent of the member.
(b) Except with the prior written consent of the member and
[express] prompt written notice to [permission of] the Exchange, every
Registered Options Principal, Sales Supervisor, and Financial/
Operations Principal, registered with a member for which the Exchange
is the Designated Examining Authority (``DEA'') [and Registered
Representative] shall devote his/her entire time during business hours
to the business of the member organization employing [him] or
compensating him/her. [or to the business of its affiliates which are
engaged in the transaction of business as a broker or dealer in
securities or commodities or in such other businesses as have been
approved by the Exchange.]
* * * * *
B. Description of the Proposed Rule Change
Currently, CBOE rule 9.4 (``Other Affiliations of Registered
Representatives'') requires a member firm's Registered Representatives
and Registered Options Principals (``ROPs'') to obtain express written
permission from the Exchange in order to engage in any business, other
than that of their member organization, during business hours. Further,
CBOE rule 3.6A (``Qualification and Registration of Certain Associated
Persons'') provides that a member firm may employ a part-time employee
or independent contractor as a Financial/Operations Principal, provided
that it receives the prior written approval of the Exchange to do so.
Pursuant to the proposed rule change, CBOE would amend rule 9.4 to
apply to all of a member firm's registered APs. The rule would now
provide that, other than in the case of a passive investment, all such
persons would be required to give prompt written notice to the
employing member, and to receive the member's prior written consent,
with respect to outside business activities. Where CBOE is the firm's
Designated Examining Authority, and the AP in question is a ROP, Sales
Supervisor, or Financial / Operations Principal, the CBOE will also
require prompt written notice to the Exchange. CBOE rule 3.6A's
restrictions on FINOPs would also be amended with changes corresponding
to the new provisions of rule 9.4.
III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.\7\
In particular, the Commission believes that the proposal is consistent
with section 6(b)(5) of the Act,\8\ which requires, among other things,
that the rules of an exchange be designed to promote just and equitable
principles of trade and to protect investors and the public interest.
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\7\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78(c)(f).
\8\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the proposed rule change will provide
CBOE with information that it needs to regulate its member firms. The
Commission further notes that the proposed rules are similar to rules
of other self-regulatory organizations.\9\ Finally, the proposed rule
change does not alter in any way the obligation of a CBOE member or
member organization to oversee the operation of its business and
supervise the performance of its associated persons, including any
potential conflicts of interest involving any associated person, in a
manner that assures compliance with the Act and rules and regulations
thereunder, as well as applicable rules of the CBOE. To this end, the
Commission notes that CBOE member firms will be obligated to review and
approve in writing any outside business arrangements of their
personnel.
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\9\ See American Stock Exchange rule 342(b), National
Association of Securities Dealers rule 3030, New York Stock Exchange
rule 346(b), Pacific Exchange rule 1.26(d) and Philadelphia Stock
Exchange rule 793.
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Therefore, the Commission believes that the proposal is consistent
with section 6(b)(5) of the Act,\10\ which requires, among other
things, that the rules of an exchange be designed to promote just and
equitable principles of trade, and to protect investors and the public
interest.
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\10\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\11\ that the proposed rule change, as amended (File No. SR-CBOE-
2003-02) be, and it hereby is, approved.
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\11\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-12145 Filed 5-14-03; 8:45 am]
BILLING CODE 8010-01-P