[Federal Register: July 12, 2007 (Volume 72, Number 133)]
[Notices]
[Page 38106-38108]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jy07-91]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56016; File No. SR-CBOE-2007-77]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Adopt an Interpretation to CBOE Rule 3.19 Regarding
Temporary Membership Status Pending Final Commission Action on a
Pending Rule Interpretation Concerning Exercise Right Eligibility
July 5, 2007.
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 July 2, 2007, 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 Exchange has designated this proposal as one constituting a stated
policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule under section
19(b)(3)(A)(i) of the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ which
renders the proposal effective upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(i).
\4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE proposes to adopt Interpretation and Policy .01 under CBOE
Rule 3.19 as follows to address the nature and extent of temporary
membership status to be granted to certain persons in the event that
the proposed acquisition of The Board of Trade of the City of Chicago,
Inc. (``CBOT'') by Chicago Mercantile Exchange Holdings Inc. (``CME
Holdings'') \5\ is consummated before the Commission takes final action
on CBOE's pending proposed rule change SR-CBOE-2006-106.\6\ The text of
the proposed Interpretation and Policy is provided below (the
Interpretation and Policy is completely new, and is therefore
italicized).
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\5\ CME Holdings proposes to acquire CBOT by means of a CME
Holdings merger with CBOT Holdings, Inc. (``CBOT Holdings''), of
which CBOT is a wholly-owned subsidiary (the ``CME/CBOT
Transaction'').
\6\ See Securities Exchange Act Release No. 55190 (January 29,
2007), 72 FR 5472 (February 6, 2007). The Exchange filed this
proposed rule change on December 12, 2006. On January 17, 2007, the
Exchange filed Amendment No. 1 to the proposed rule change. Numerous
comments were received, and the Exchange responded to those comments
on June 15, 2007. On June 29, 2007, the Exchange filed Amendment No.
2 to the proposed rule change.
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Chicago Board Options Exchange, Incorporated
Rules
* * * * *
Rule 3.19. Termination from Membership
Rule 3.19. No change.
* * * Interpretations and Policies:
.01 If the proposed merger between Chicago Mercantile Exchange
Holdings, Inc. and CBOT Holdings, Inc. (``CME/CBOT Transaction''), the
parent company of the Board of Trade of the City of Chicago, Inc.
(``CBOT''), is consummated and if such consummation occurs before the
Securities and Exchange Commission (``Commission'') takes final action
on SR-CBOE-2006-106, a person who is a member of CBOE (an ``exerciser
member'') pursuant to paragraph (b) of Article Fifth of the CBOE
Certificate of Incorporation (``Article Fifth(b)'') as of July 1, 2007
will be granted temporary membership status at the Exchange, until the
Commission takes final action on SR-CBOE-2006-106, if and only if such
person (i) Remains an exerciser member in good standing as of the close
of business on the trading day immediately before the consummation of
the CME/CBOT Transaction, (ii) thereafter remains in good standing and
continues to pay all applicable fees, dues, assessments and other like
charges that are assessed against CBOE members, and (iii) pays to the
Exchange,
[[Page 38107]]
for each month starting in the month after the CME/CBOT Transaction is
consummated, a monthly access fee based on the then current monthly
lease fees being paid to lessors of the interest that CBOT denominates
as a full CBOT membership, with such fee to be set by the Exchange on a
monthly basis based on published lease fee information. Such access fee
shall be due and payable in advance of each calendar month that the
person decides to retain the temporary membership status granted
pursuant to this paragraph. All such access fees shall be payable to
and held in an interest-bearing escrow account maintained by the
Exchange until the Commission takes final action on SR-CBOE-2006-106.
The Exchange will retain such fees if the Commission approves SR-CBOE-
2006-106, and such fees will be returned to the payor if the Commission
disapproves SR-CBOE-2006-106. The temporary membership status granted
pursuant to this paragraph shall be subject to the regulatory
jurisdiction of CBOE under the Act, the Constitution and the Rules,
including CBOE's disciplinary jurisdiction under Chapter XVII.
* * * * *
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
The purpose of the proposed rule change is to address whether or to
what extent persons who claim the right to become and remain a member
of CBOE (the right to be an ``exerciser member'') pursuant to paragraph
(b) of Article Fifth of the CBOE Certificate of Incorporation
(``Article Fifth(b)'') should continue temporarily to retain their CBOE
membership status after the consummation of the CME/CBOT Transaction
and before the Commission has taken final action on SR-CBOE-2006-106.
In SR-CBOE-2006-106, CBOE proposed an interpretation of Article
Fifth(b) to address the impact of the CME/CBOT Transaction on the
eligibility of persons to be exerciser members. Under this proposed
interpretation, the consummation of the CME/CBOT Transaction would
result in no persons any longer qualifying as members of the CBOT
within the meaning of Article Fifth(b) and, therefore, would result in
the elimination of the eligibility of any person thereafter to qualify
to be an exerciser member. Although SR-CBOE-2006-106 is pending before
the Commission and awaiting action, there is a risk that the proposed
CME/CBOT Transaction may be consummated before the Commission is able
to act on SR-CBOE-2006-106. In particular, the shareholders of CBOT
Holdings and CME Holdings and the holders of certain CBOT memberships
are presently scheduled to vote on the proposed transaction on July 9,
2007.
If the CME/CBOT Holdings Transaction is consummated, but the
Commission has not yet taken action on CBOE's interpretation in SR-
CBOE-2006-106 concerning the effect of that transaction on exercise
right eligibility, CBOE will need to implement a procedure to determine
whether persons who claim still to qualify as exerciser members should
be permitted to retain their membership status, and consequently to
trade on CBOE, while a decision on SR-CBOE-2006-106 is pending. In this
regard, upon the consummation of the CME/CBOT Transaction, the approval
of SR-CBOE-2006-106 would mean that former exerciser members have lost
that membership status. However, if the Commission has not taken final
action on SR-CBOE-2006-106 when the CME/CBOT Transaction is
consummated, those persons may maintain that they are still exerciser
members.
Interpretation and Policy .01 under CBOE Rule 3.19 deals with these
extenuating circumstances by allowing certain categories of those
persons temporarily to retain their membership status while SR-CBOE-
2006-106 remains pending. In particular, under Interpretation and
Policy .01, persons who were exerciser members in good standing as of
July 1, 2007 and who remain exerciser members as of the close of
business on the day before the consummation of the CME/CBOT Transaction
temporarily would retain their membership status--including their
trading access to CBOE--until the Commission acts on SR-CBOE-2006-106.
Such persons would not be required to take any action to retain their
membership status and would not be required to hold or maintain any
securities, memberships or other interests in order to maintain that
status. Rather, the Exchange would determine who was an exerciser
member as of both of the specified dates and would take appropriate
action to ensure that those persons retain their membership status
after that date until the Commission takes final action SR-CBOE-2006-
106. Such persons would be required to remain in good standing and
would need to pay all applicable fees, dues, assessments and other like
charges assessed against CBOE members. Of course, this temporary
membership status would be subject to the regulatory jurisdiction of
the Exchange under the Exchange Act and the Constitution and Rules of
the Exchange, including the Exchange's disciplinary jurisdiction under
Chapter XVII of the Exchange's rules.
Because such persons would be relieved of the obligation to hold or
maintain any securities, memberships or other interests in order to
maintain their membership status, they would be required to pay a
monthly access fee based on the then current monthly lease fees being
paid to lessors of the interest that CBOT denominates as a full CBOT
membership. This monthly access fee would be set by the Exchange on a
monthly basis, based on published lease fee information, and would be
payable starting in the month after the month in which the CME/CBOT
Transaction is consummated and lasting until the Commission takes final
action on SR-CBOE-2006-106. The Exchange will submit a further proposed
rule change, pursuant to section 19(b)(3)(A)(ii), to specify the access
fee to be charged or to specify the methodology by which this access
fee will be determined. Any subsequent change in the amount of that
access fee or in the methodology for determining that fee also will be
submitted as a proposed rule change pursuant to section
19(b)(3)(A)(ii). Because the Commission would not yet have determined
whether to approve SR-CBOE-2006-106 during the period that these access
fees were being collected, all access fees collected under this
interpretation would be held in an interest-bearing escrow account
maintained by the Exchange. The Exchange would retain such fees if the
Commission approved SR-CBOE-2006-106, and such fees would be returned
to the payor if the Commission disapproved SR-CBOE-2006-106. This
access fee addresses the competitive advantage that the persons trading
under the membership status granted in
[[Page 38108]]
Interpretation and Policy .01 otherwise would have over lessees of
transferable Exchange memberships, in light of the fact that the former
exerciser members would be relieved of their financial obligation to
obtain and hold any securities, memberships or other interests in order
to maintain their membership status.
Under Interpretation and Policy .01, only persons who were
exerciser members as of both of the specified dates, not persons who
might thereafter claim the right to become an exerciser member, would
have any membership status after the CME/CBOT Transaction, pending the
Commission's final action on SR-CBOE-2006-106. CBOE Rule 3.19 provides
CBOE with the authority only to allow persons who actually were members
to retain their membership status on a temporary basis and does not
authorize the granting of such status to persons who were not already
CBOE members.
Upon the Commission's final action on SR-CBOE-2006-106,
Interpretation and Policy .01 would cease to be in effect, and the
rights of persons who claim to be exerciser members would be determined
in accordance with the Commission's decision on SR-CBOE-2006-106.
Pursuant to the terms of SR-CBOE-2006-106, there would be a different
temporary access plan to address transitional issues that would arise
from the approval of SR-CBOE-2006-106.
The Exchange believes that Interpretation and Policy .01 is
reasonable under the circumstances. It avoids disturbing the trading
access of persons who were exerciser members before the consummation of
the CME/CBOT Transaction while the Commission is determining whether
that transaction has extinguished their eligibility to be exerciser
members. This interpretation also preserves fair and orderly markets at
CBOE by avoiding the sudden loss of more than 200 persons who presently
are contributing liquidity to CBOE's markets. So that persons who do
not have a bona fide interest in trading on CBOE do not exercise in
reaction to the adoption of Interpretation and Policy .01, a person
must have been an exerciser not only as of the close of business on the
day immediately before the consummation of the CME/CBOT Transaction,
but also as of July 1, 2007, the day immediately before the filing of
Interpretation and Policy .01. Under SR-CBOE-2006-106, persons would
have had to be an exerciser member as of December 11, 2006 in order to
qualify for transitional trading access after the approval of SR-CBOE-
2006-106. Interpretation and Policy .01 therefore effectively extends
that cut-off date, as it applies to temporary trading access before
final action on SR-CBOE-2006-106, more than six months to July 1, 2007.
2. Statutory Basis
The Exchange believes that this filing is consistent with section
6(b) of the Act,\7\ in general, and furthers the objectives of section
6(b)(5) of the Act.\8\ In particular, this interpretation is designed
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market,
and, in general, to protect investors and the public interest.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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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 that is 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
The foregoing rule change has become effective pursuant to section
19(b)(3)(A) of the Act \9\ and paragraph (f) of Rule 19b-4
thereunder.\10\ At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.\11\
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4(f)(1).
\11\ See 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-CBOE-2007-77 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2007-77. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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, on official business
days between the hours of 10 a.m. and 3 p.m. Copies of the filing also
will be available for inspection and copying at the principal office of
the CBOE. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
CBOE-2007-77 and should be submitted on or before August 2, 2007.
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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13490 Filed 7-11-07; 8:45 am]
BILLING CODE 8010-01-P