[Federal Register: November 24, 2003 (Volume 68, Number 226)]
[Notices]
[Page 65975-65977]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24no03-135]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48797; File No. SR-CBOE-2003-49]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Incorporated Relating to
Time Periods Within the Membership Process
November 17, 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 21, 2003, 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, 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 change the time periods (i) after which an
individual's inactive nominee status will be terminated and (ii) during
which a former individual member may reapply for membership through the
renewal/change of status application process.
The text of the proposed rule change is available at the Office of
the Secretary, CBOE and at the Commission.
[[Page 65976]]
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 for in Sections A,
B, and C below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
CBOE Rule 3.8(g) provides that a member organization may designate
one or more inactive nominees. An inactive nominee is an individual who
is eligible to become an effective nominee of a member organization
with respect to any membership for which the organization is either an
owner (and not a lessor) or is a lessee. In order to become an inactive
nominee of a member organization, an individual must be approved for
membership and become an effective nominee of the member organization,
with authorized floor functions, within 90 days of the approval for
membership. An inactive nominee has no rights or privileges of
membership and no right of access to the Exchange's trading floor,
unless and until the inactive nominee becomes an effective member.
Additionally, Rule 3.8(g)(iv) provides that if at any time an
individual remains an inactive nominee for 6 consecutive months, the
individual's eligibility for membership is terminated and the
individual must reapply for membership in order to again become
eligible for inactive nominee status.
The Exchange proposes to extend the time period under Rule
3.8(g)(iv) by 3 months. Specifically, the Exchange proposes to amend
Rule 3.8(g)(iv) to provide that an individual's inactive nominee status
will terminate if at any time an individual remains an inactive nominee
for 9 consecutive months. The Exchange believes this change will
improve the efficiency of the Exchange's membership processes in that
individuals will have a longer period of time during which they may
remain inactive nominees before they are required to go through a
membership application process.
Similarly, in order to further improve the efficiency of the
Exchange's membership processes, the Exchange proposes to change the
time period during which a former individual member may reapply for
membership through the renewal/change of status application process. As
with the inactive nominee termination period, the time period during
which a former individual member may reapply for membership through the
renewal/change of status application process is proposed to be extended
from the current 6 month period following termination from membership
to 9 months following membership termination. The foregoing change
would be reflected in three ways in CBOE rules.
First, CBOE Rule 3.9(e) would be amended to provide that a posting
period will not be applicable when an applicant has been a member
within 9 months prior to the date of receipt of the applicant's
membership application by the Membership Department. Currently, the
name of an applicant and the application request are published in the
Exchange Bulletin and posted on the Exchange Bulletin Board for 10 days
if the applicant has not been a member within 6 months prior to
submission of the application. This is the case because applicants that
go through the renewal/change of status application process do not have
a posting period. Accordingly, the time period under Rule 3.9(e) in
which a former member is not subject to a posting period is also
proposed to be changed to 9 months from membership termination in order
to correspond to the new proposed time period during which a former
member may reapply for membership through the renewal/change of status
application process.
Second, Rule 3.9(f) would be amended to provide that applicants are
not required to be investigated by the Exchange if the applicant was a
member within 9 months (instead of the current 6 months) prior to
submission of that applicant's membership application or if the
applicant was investigated by the Membership Department within 9 months
(instead the current 6 months) prior to submission of the application.
This maintains the current procedure under which applicants that go
through the renewal/change of status application process are not
investigated by the Membership Department. However, the Membership
Department would retain its current authority under Rule 3.9(f) to
investigate any applicant that is not required to be investigated.
Additionally, membership applicants that go through the renewal/change
of status application process will continue to have their fingerprints
submitted to the Attorney General of the United States or its designee
in connection with the application.
Third, the Exchange's Membership Fee Circular would be amended to
provide that the Renewal/Change of Status application fee would apply
to a former individual member who reapplies for membership within 9
months (instead of the current 6 months) of his/her membership
termination date and who becomes an effective member within 1 year of
his/her membership termination date. Under the amended Membership Fee
Circular, a former individual member who reapplies for membership
within 9 months of termination from membership would be assessed the
Renewal/Change of Status fee at the time of submission of the
application. If that person becomes an effective member more than 1
year after his/her membership termination date, the person would then
be charged an additional fee equal to the difference between the
Individual/Nominee/CBOT Exerciser/Lessee/Lessor application fee and the
Renewal/Change of Status fee.
The reason that an additional fee will be assessed if a former
member reapplies for membership within 9 months of membership
termination and then does not become an effective member within 1 year
after membership termination is to discourage applicants from taking
advantage of the lower Renewal/Change of Status fee and then not
following through on the application or their membership approval on a
timely basis. Rule 3.9(l) provides that if the membership application
process is not completed within 6 months of the submission of a
membership application, the application shall be deemed to be
automatically withdrawn. Rule 3.10 provides that an applicant approved
for membership must become effective in that status within 90 days of
the approval for that status (except that an applicant approved as a
lessor may become effective in that status within 6 months of
approval). Therefore, it is conceivable that an applicant could request
that the Membership Department defer action on a membership application
for up to 6 months after it is submitted and then not become an
effective member following membership approval for another 3 months (or
another 6 months in the case of a lessor). The Exchange does not
believe the Renewal/Change of Status fee should apply to such
situations (for example, where an individual takes advantage of the
Renewal/Change of Status fee and then does not become an effective
member again until 18 months after termination
[[Page 65977]]
from membership) because the time frame between membership termination
and becoming an effective member again in those situations is beyond
the time period to which the Renewal/Change of Status fee is intended
to apply.
Additionally, it should be noted that, irrespective of the changes
proposed by this rule filing, CBOE Rule 3.9(g) will remain applicable.
Rule 3.9(g) provides, in pertinent part, that any person who does not
possess an authorized floor function for more than 1 year is required
to re-attend the Exchange's New Member Orientation Program and to re-
pass the Floor Member Qualification Exam in order to once again become
eligible to have an authorized floor function. Retention of this
requirement will ensure that former members that have not had an
authorized floor function for an extended period of time will go
through the Exchange's floor member orientation class again and will be
required to pass the related Exchange exam.
2. Statutory Basis
The proposed rule change will improve the efficiency of the
Exchange's membership application processes. Accordingly, the proposed
rule change is consistent with Section 6(b) of the Act,\3\ in general,
and further the objectives of Section 6(b)(5) \4\ in particular, in
that the proposed rule change is designed to remove impediments to and
perfect the mechanism of a free and open market while maintaining other
current Exchange rules and procedures that are designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The CBOE 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 self-regulatory organization 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 proposal 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-2003-49 and should be
submitted by December 15, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29296 Filed 11-21-03; 8:45 am]
BILLING CODE 8010-01-P