Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change Relating to the Imposition of Fines for Minor Rule Violations, 9377 [E8-3038]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 73, Number 34 (Wednesday, February 20, 2008)]
[Notices]
[Page 9377]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-3038]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57314; File No. SR-CBOE-2007-143]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change Relating to the 
Imposition of Fines for Minor Rule Violations

February 12, 2008.
    On December 27, 2007, the Chicago Board Options Exchange, 
Incorporated (``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 to amend CBOE Rule 17.50 
(Imposition of Fines for Minor Rule Violations) and to revise CBOE 
17.50(g)(8) (Violations of Exercise and Exercise Advice Rules for Non-
Cash-Settled Equity Options). The proposed rule change was published 
for comment in the Federal Register on January 10, 2008.\3\ The 
Commission received no comments regarding the proposal. This order 
approves the proposed rule change.
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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. 57089 (January 3, 
2008), 73 FR 1900.
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    The Exchange proposes to increase and strengthen the sanctions 
imposed under its Minor Rule Violation Plan (``MRVP'') on any member 
who fails to submit to the Exchange in a timely manner pursuant to CBOE 
Rule 11.1 (or a Regulatory Circular issued pursuant to CBOE Rule 11.1) 
``Advice Cancel'' or exercise instruction relating to the exercise or 
nonexercise of a noncash-settled equity option. The Exchange believes 
that increasing the fine levels specified with respect to both 
individual members and member organizations and lengthening the 
surveillance period from a 12-month period to a rolling 24-month period 
will serve as an effective deterrent to such violative conduct.\4\
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    \4\ In addition, as a member of the Intermarket Surveillance 
Group, the Exchange, as well as certain other self-regulatory 
organizations (``SROs'') executed and filed on October 29, 2007 with 
the Commission, a final version of an Agreement pursuant to Section 
17(d) of the Act (the ``17d-2 Agreement''). As set forth in the 17d-
2 Agreement, the SROs have agreed that their respective rules 
concerning the filing of Expiring Exercise Declarations, also 
referred to as Contrary Exercise Advices, of options contracts, are 
common rules. As a result, the proposal to amend CBOE's MRVP will 
result in further consistency in sanctions among the SROs that are 
signatories to the 17d-2 Agreement concerning Contrary Exercise 
Advice violations.
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    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.\5\ In 
particular, the Commission believes that the proposal is consistent 
with Section 6(b)(5) of the Act,\6\ which requires that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to facilitate transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Commission further believes that CBOE's proposal to increase the 
fine levels imposed on individuals and member organizations who fail to 
submit Advice Cancel or exercise instructions in a timely manner is 
consistent with Sections 6(b)(1) and 6(b)(6) of the Act,\7\ which 
require that the rules of an exchange enforce compliance with, and 
provide appropriate discipline for, violations of Commission and 
Exchange rules. In addition, the Commission finds that the proposal is 
consistent with the public interest, the protection of investors, or 
otherwise in furtherance of the purposes of the Act, as required by 
Rule 19d-1(c)(2) under the Act,\8\ which governs minor rule violation 
plans. The Commission believes that the proposed rule change should 
strengthen the Exchange's ability to carry out its oversight and 
enforcement responsibilities as an SRO in cases where full disciplinary 
proceedings are unsuitable in view of the minor nature of the 
particular violation.
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    \5\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \8\ 17 CFR 240.19d-1(c)(2).
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    In approving this proposed rule change, the Commission in no way 
minimizes the importance of compliance with CBOE rules and all other 
rules subject to the imposition of fines under the MRVP. The Commission 
believes that the violation of any SRO rules, as well as Commission 
rules, is a serious matter. However, the MRVP provides a reasonable 
means of addressing rule violations that do not rise to the level of 
requiring formal disciplinary proceedings, while providing greater 
flexibility in handling certain violations. The Commission expects that 
CBOE would continue to conduct surveillance with due diligence and make 
a determination based on its findings, on a case-by-case basis, whether 
a fine of more or less than the recommended amount is appropriate for a 
violation under the CBOE MRVP or whether a violation requires formal 
disciplinary action under CBOE Chapter XVII.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\9\ and Rule 19d-1(c)(2) under the Act,\10\ that the proposed rule 
change (SR-CBOE-2007-143) be, and hereby is, approved and declared 
effective.
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 17 CFR 240.19d-1(c)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-3038 Filed 2-19-08; 8:45 am]
BILLING CODE 8011-01-P