Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of a Proposed Rule Change Relating to an Exchange Member's Conduct of Doing Business With the Public, 15810-15814 [E8-5965]

Download as PDF 15810 Federal Register / Vol. 73, No. 58 / Tuesday, March 25, 2008 / Notices SECURITIES AND EXCHANGE COMMISSION sections A, B, and C below, of the most significant aspects of such statements. [Release No. 34–57527; File No. SR–Amex– 2007–129] A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of a Proposed Rule Change Relating to an Exchange Member’s Conduct of Doing Business With the Public March 19, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, as amended (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 29, 2007, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. mstockstill on PROD1PC66 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Amex proposes to amend certain Amex Rules that govern an Exchange member’s conduct of doing business with the public. Specifically, the proposed rule change would require member organizations (also ‘‘member firms’’ or ‘‘firms’’) to integrate the responsibility for supervision of their public customer options business into its overall supervisory and compliance programs. In addition, the proposal would require member firms to strengthen their supervisory procedures and internal controls as related to their public customer options business. The text of the proposed rule change is available at the Amex, the Commission’s Public Reference Room and https://www.amex.com. 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 Amex 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 III below. The Amex has prepared summaries, set forth in 1 15 2 17 U.S.C. 78s(b)(l). CFR 240.19b–4. VerDate Aug<31>2005 18:33 Mar 24, 2008 Jkt 214001 1. Purpose a. Integration of Options Supervision The purpose of the proposed rule change is to create a supervisory structure for options that is similar to that required by New York Stock Exchange, Inc. (‘‘NYSE’’) Rule 342 and National Association of Securities Dealers, Inc. (‘‘NASD’’) Rule 3010.3 The proposed rule change would also conform Amex rules to those of the CBOE by eliminating the requirement that a member firm, qualified to do a public customer business in options, designate a single person to act as a Senior Registered Options Principal (‘‘SROP’’) for the member organization and that each such member organization designate a specific individual as a Compliance Registered Options Principal (‘‘CROP’’).4 The Exchange proposes to eliminate the SROP and CROP supervisory categories, allowing member firms to supervise their options activities through their overall supervisory and compliance programs that monitor all other securities products. The SROP concept was first introduced during the early years of development of the listed options market. Previously under Amex rules, member firms were required to designate one or more persons qualified as Registered Options Principals (‘‘ROPs’’) to have supervisory responsibilities with respect to the firms’ options business. As the number of ROPs at larger firms began to increase, the Amex imposed an additional requirement that member firms designate one of their ROPs as the SROP. This was intended to eliminate confusion as to where the compliance and supervisory responsibilities lay by centralizing in a single supervisory officer overall responsibility for the supervision of a firm’s options 3 On July 26, 2007, the Commission approved a proposed rule change filed by NASD to amend NASD’s Certificate of Incorporation to reflect its name change to Financial Industry Regulatory Authority, Inc., or FINRA, in connection with the consolidation of the member firm regulatory functions of NASD and NYSE Regulation, Inc. See Exchange Act Release No. 56146 (July 26, 2007), 72 FR 42190 (Aug. 1, 2007). The FINRA rule book currently consists of both NASD rules and certain NYSE rules that FINRA has incorporated. 4 See Securities and Exchange Act Release No. 56492 (September 21, 2007) 72 FR 54952 (September 27, 2007) (SR–CBOE–2007–106). PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 activities.5 Subsequently, following the recommendation of the Special Study of the Options Market,6 the Amex and the other options exchanges required firms to designate a CROP to be responsible for each firm’s overall compliance program with respect to its options activities. The CROP could be the same person designated as a SROP, but while the CROP generally was not permitted to have sales functions in the firm, whereas the SROP was not so restricted. Since the SROP and CROP requirements were first imposed, the supervisory function with respect to options activities of most securities firms has been integrated into their supervisory function matrix for securities activities overall. This not only reflects the maturity of the options market, but also recognizes the ways in which the uses of options themselves have become more integrated with other securities in the implementation of particular strategies. By permitting supervision of a firm’s options activities to be handled in the same manner as the supervision of its securities and futures activities, the proposed rule change will ensure that supervisory responsibility over each segment of a firm’s business is assigned to the best qualified persons in the firm, thereby enhancing the overall quality of supervision and compliance. The proposed rule change will allow firms the flexibility to assign such supervisory and compliance responsibilities, which formerly resided with the SROP and/or CROP, to more than one individual. For example, the proposed rule change will permit a member firm to designate certain ROPs to be responsible for a variety of supervisory compliance functions such as approving acceptance of discretionary accounts 7; approval of communications to customers 8 and exceptions to a member firm’s suitability standards for trading uncovered short options.9 Firms would be likely to do this in instances where the firm believes it advantageous to do so to enhance its supervisory or compliance structure. Typically, a firm may also wish to divide these functions on the basis of geographic region or functional considerations. Amex Rule 920 would be amended to clarify the qualification requirements of individuals designated as ROPs and also 5 Report of the Special Study of the Options Market (‘‘Special Study’’), p. 316 note 11 (December 22, 1978). 6 Id. at p. 335. 7 See proposed Amex Rule 924(a) and Commentary .05 to Rule 920. 8 See proposed Amex Rule 991(b). 9 See proposed Amex Rule 921(g)(3). E:\FR\FM\25MRN1.SGM 25MRN1 mstockstill on PROD1PC66 with NOTICES Federal Register / Vol. 73, No. 58 / Tuesday, March 25, 2008 / Notices to specify the registration requirements of individuals who accept orders from non-broker-dealer customers. With respect to discretionary accounts, the proposal would require acceptance of such accounts to be assigned to individuals who are qualified ROPs. Further, the proposal would require that the individual who reviews the acceptance of a discretionary account (who is an individual other than the ROP who accepted the account as required by Amex Rule 924(a)) to be Series 4 qualified because such a review is not a routine sales supervisory function and requires more in-depth knowledge of options than what is covered by the Series 9/10 examination.10 The proposed rule change would eliminate the requirement that discretionary options orders be approved on the day of entry by a ROP (with one exception as discussed below) because such requirement is not consistent with the use of supervisory tools in computerized format or exception reports generated after the close of trading day. No similar requirement exists for supervision of other securities accounts that are handled on a discretionary basis.11 Discretionary orders would be required to be reviewed in accordance with a firm’s written supervisory procedures. We believe the proposed rule change will ensure that supervisory responsibilities are assigned to specific qualified individuals, thereby enhancing the quality of supervision. Amex Rule 924 would be revised by adding as Commentary .01, a requirement that any firm that does not utilize computerized surveillance tools for the frequent and appropriate review of discretionary account activity must establish and implement procedures to require ROP-qualified individuals (‘‘Qualified Individuals’’) who have been designated to review discretionary accounts to approve and initial each discretionary order on the day entered. The Exchange believes that any firm that does not utilize computerized surveillance tools to monitor discretionary account activity should continue to be required to perform the daily manual review of discretionary orders. Under the proposed rule change, firms would continue to be required to designate Qualified Individuals to provide frequent appropriate supervisory review of options discretionary accounts.12 This review includes the requirement that these 10 See supra note 5. e.g., NYSE Rule 408. 12 See proposed Amex Rule 924(a). 11 See, VerDate Aug<31>2005 18:33 Mar 24, 2008 Jkt 214001 Qualified Individuals review the accounts in order to determine whether the ROP accepting the account had a reasonable basis for believing that the customer was able to understand and bear the risks of the proposed strategies or transactions. This requirement provides an additional level of supervisory audit over options discretionary accounts that does not exist for other securities discretionary accounts. In addition, the proposed change to Amex Rule 922 would require that each member organization provide for the preparation and submission of a written annual report to one or more of its control persons or, if the firm has no control person, to the audit committee of its board of directors or its equivalent group (collectively referred to as, ‘‘Control Person’’). The firm would be required to submit the report to the Exchange and to its Control Person by April 1st of each year. The firm would be required to detail in the report its supervision and compliance effort, including its options compliance program, during the preceding year and the adequacy of its ongoing compliance processes and procedures.13 Proposed Amex Rule 922(g) would further provide that a member organization that specifically includes its options compliance program in a report that complies with substantially similar NYSE and NASD rules will be deemed to have satisfied the requirements of Amex Rules 922(g) and 922(h). Where appropriate, the proposed rule changes would delete references to SROP and CROP in Amex Rules 421, 920, 921, 922, 924 and 991. Although the proposed rule change would eliminate entirely the positions and titles of SROP and CROP, firms would still be required to designate a single general partner or executive officer to assume overall authority and responsibility for internal supervision, control of the organization and compliance with securities laws and regulations.14 A firm would also be required to designate specific qualified individuals as having supervisory or compliance responsibilities over each aspect of the firm’s options activities and to set forth the names and titles of these individuals in its written supervisory procedures.15 The Exchange is a party to an options sales practice compliance plan, 13 See proposed Amex Rules 922(g) and 922(h), which are modeled after NYSE Rules 342.30 and 354, respectively. 14 See proposed Amex Rule 922(a). 15 See proposed Amex Rule 922(a). PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 15811 amended on March 26, 2007, entered into pursuant to Section 17(d) of the Securities Exchange Act of 1934 (the ‘‘1934 Act’’) and Rule 17d–2, promulgated thereunder.16 For Exchange members that are also FINRA members, the amended plan allocates responsibility for examination and enforcement of members’ compliance with options sales practice rules primarily to FINRA 17 (the ‘‘Options 17d–2 Plan’’). For non-FINRA members, the Options 17d–2 Plan provides that the exchange which is the Designated Examining Authority (‘‘DEA’’), pursuant to Rule 17d–1 under the Act, shall perform the regulatory responsibilities designated to it in the Options 17d–2 Plan. Under these provisions the Amex currently has responsibility for examination and enforcement of options sales practice rules as to three members (one of which is a dual member of the Philadelphia Stock Exchange and Amex and two Amex only members). FINRA will be primarily responsible for options sales practice examination and enforcement as to other dual members. In connection with the approval of these proposed changes, the Exchange intends to closely review written supervisory and compliance procedures of firms, for which it is the DEA, in the course of its routine examinations of member firms to ensure that supervisory and compliance responsibilities are adequately defined. The Exchange believes the proposed rule changes will increase accountability and eliminate impractical and unrealistic supervisory standards applicable solely to listed options. The Exchange believes that the proposed rule changes are appropriate and will not materially alter the supervisory operations of firms. Supervisory Procedures and Internal Controls b. Supervisory Procedures and Internal Controls The Exchange is also proposing to amend certain rules to strengthen member firms’ supervisory procedures and internal controls relating to a member’s public customer options business. The proposed rule changes discussed below are modeled after NYSE and NASD rules approved by the Commission in 2004.18 The Exchange 16 Securities Exchange Release Act No. 34–55532 (March 26, 2007) 72 FR 15729 (April 2, 2007). 17 See, infra, note 3. 18 See Securities Exchange Act Release Nos. 49882 (June 17, 2004), 69 FR 35108 (June 23, 2004) (SR–NYSE–2002–36) (approval order), 49883 (June 17, 2004), 69 FR 35092 (June 23, 2004) (SR–NASD– 2002–162) (approval order). E:\FR\FM\25MRN1.SGM 25MRN1 15812 Federal Register / Vol. 73, No. 58 / Tuesday, March 25, 2008 / Notices believes its proposal to strengthen member supervisory procedures and internal controls is appropriate and consistent with the proposal discussed above to integrate the responsibility for supervision of a member firm’s public customer options business into its overall supervisory and compliance program. The Exchange is proposing to revise Amex Rule 922(a)(3) to require the development and implementation of written policies and procedures reasonably designed to supervise sales managers and other supervisory personnel who service customer options accounts.19 This requirement would apply to branch office managers, sales managers, regional/district sales managers, or any person performing a similar supervisory function. Such policies and procedures are expected to encompass all options sales-related activities. Proposed Amex Rule 922(a)(3)(i) would require that supervisory reviews of producing sales managers be conducted by a qualified ROP who is either senior to, or otherwise ‘‘independent of,’’ the producing manager under review.20 This provision is intended to ensure that all options sales activity of a producing manager is monitored for compliance with applicable regulatory requirements by persons who do not have a personal interest in such activity. Proposed Amex Rule 922(a)(3)(ii) would provide an exception for firms so limited in size and resources that there is no qualified person senior to, or otherwise independent of, the producing manager to conduct the review. In this case, the review would be conducted by a qualified ROP to the extent practicable. Under proposed Amex Rule 922(a)(3)(iii), a member relying on the limited size and resources exception must document the factors used to determine that compliance with each of the ‘‘senior’’ or ‘‘otherwise independent’’ standards of proposed Amex Rule 922(a)(3)(i) is not possible, and that the required supervisory systems and procedures in place with respect to any producing manager comply with the provisions of proposed Amex Rule 922(a)(3)(i) to the extent practicable.21 mstockstill on PROD1PC66 with NOTICES 19 Proposed Amex Rule 922(a)(3) is modeled after NYSE Rule 342.19. 20 An ‘‘otherwise independent’’ person is defined in proposed Amex Rule 922(a)(3)(i). 21 Proposed Amex Rule 922(a)(3)(iv) would provide that a member organization that complies with the NYSE or NASD rules that are substantially similar to the requirements in Rules 922(a)(3)(i), (a)(3)(ii) and (a)(3)(iii) will be deemed to have met such requirements. VerDate Aug<31>2005 18:33 Mar 24, 2008 Jkt 214001 Proposed Amex Rule 922(c)(i) would require member organizations to develop and maintain adequate controls over each of their business activities. The proposed rule would further require that such controls include the establishment of procedures to independently verify and test the supervisory systems and procedures for those business activities. A firm would be required to include in the annual report, prepared pursuant to proposed Amex Rule 922(g), a review of the firm’s efforts in this regard, including a summary of the tests conducted and significant exceptions identified. The Exchange believes proposed Amex Rule 922(c)(i) would enhance the overall quality of each member organization’s supervision and compliance function.22 Paragraph (d) of proposed Amex Rule 922 would establish requirements for branch office inspections similar to the requirements of NYSE Rule 342.24. Specifically Amex Rule 922(d) would require a member organization to inspect, at least annually, each supervisory branch office and inspect each non-supervisory branch office at least once every three years.23 The proposed rule would further require persons who conduct a firm’s annual branch office inspection to be independent of the direct supervision or control of the branch office (i.e., not the branch office manager, or any person who directly or indirectly reports to such manager, or any person to whom such manager directly reports). The Exchange believes that requiring branch office inspections to be conducted by someone who has no significant financial interest in the success of a branch office should lead to more objective and vigorous inspections. Under proposed Amex Rule 922(e), any firm seeking an exemption, pursuant to Rule 922(d)(1)(ii), from the annual branch office inspection requirement would be required to submit to the Exchange written policies and procedures for systematic riskbased surveillance of its branch offices, as defined in Rule 922(e). Proposed Amex Rule 922(f) would require the annual branch office inspection programs to include, at a minimum, testing and verification of specified 22 Proposed Amex Rule 922(c)(i) is modeled after NYSE Rule 342.23. Paragraph (c)(ii) of proposed Amex Rule 922 would provide that a member organization that complies with NYSE or NASD rules that are substantially similar to the requirements in paragraph (c)(i) of proposed Amex Rule 922 will be deemed to have met such requirements. 23 Proposed Amex Rules 922(d)(1)(i) and (ii) would provide members with two exceptions from the annual supervisory branch office inspection requirement. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 internal controls.24 Proposed Amex Rule 922(d)(3) would provide that a firm that complies with the requirements of NASD or the NYSE that are substantially similar to the requirements of Rules 922(d), (e) and (f) will be deemed to have met such requirements. The Exchange is also proposing to amend Commentary .04 of Amex Rule 922 to define ‘‘branch office’’ in a way that is substantially similar to the definition of branch office in NYSE Rule 342.10. Proposed Amex Rule 922(g)(4) would require a firm to designate a Chief Compliance Officer (CCO). Proposed Rule 922(g)(5) would require each firm’s Chief Executive Officer (CEO), or equivalent, to certify annually that the member organization has in place processes to (1) establish and maintain policies and procedures reasonably designed to achieve compliance with applicable Exchange rules and federal securities laws and regulations, (2) modify such policies and procedures as business, regulatory, and legislative changes and events dictate, and (3) test the effectiveness of such policies and procedures on a regular basis, the timing of which is reasonably designed to ensure continuing compliance with Exchange rules and federal securities laws and regulations. Proposed Amex Rule 922(g)(5) would also require the CEO to attest (1) that he or she has conducted one or more meetings with the CCO in the preceding 12 months to discuss the compliance processes in proposed Rule 922(g)(5)(i), (2) that he or she has consulted with the CCO and other officers to the extent necessary to attest to the statements in the certification, and (3) that the compliance processes are evidenced in a report, reviewed by the CEO, CCO and such other officers as the member firm deems necessary to make the certification, that is provided to the member firm’s board of directors and audit committee (if such committee exists).25 Under proposed Amex Rule 922(b)(2), a member, upon a customer’s written instructions, may hold mail for a customer who will be away from his or her usual address for no longer than two months if the customer is on vacation or traveling, or three months if the customer is going abroad. This provision would help ensure that members that hold mail, for customers who are away from their usual addresses, do so only pursuant to the 24 Proposed Rules 922(e) and (f) are modeled after NYSE Rules 342.25 and 342.26, respectively. 25 Proposed Amex Rule 922(g)(5) is modeled after NASD Rule 3013 and NYSE Rule 342.30(e). E:\FR\FM\25MRN1.SGM 25MRN1 Federal Register / Vol. 73, No. 58 / Tuesday, March 25, 2008 / Notices mstockstill on PROD1PC66 with NOTICES customer’s written instructions and for a specified, relatively short period of time.26 Proposed Amex Rule 922(b)(3) would require that, before a customer options order is executed, the account name or designation must be placed upon the memorandum for each transaction. In addition, only a Qualified Individual would be permitted to approve any changes in account names or designations. The ROP would be required to document the essential facts relied upon in approving the changes and maintain the record in an easily accessible place. A member would be required to preserve any documentation which provides for an account designation change for a period of not less than three years, with the documentation preserved for the first two years in an easily accessible place, as the term ‘‘easily accessible place’’ is used in Rule 17a–4 of the Act.27 The Exchange believes the proposed rule would help to protect account name and designation information from possible fraudulent activity.28 Amex Rule 924(d) allows firms to exercise time and price discretion on orders for the purchase or sale of a definite number of options contracts in a specified security. The Exchange proposes to amend Amex Rule 924(d) to limit the duration of this discretionary authority to the day it is granted, absent written authorization to the contrary. In addition, the proposed rule would require any exercise of time and price discretion to be reflected on the customer order ticket. The proposed one-day limitation would not apply to time and price discretion exercised for orders effected with or for an institutional account (as defined in Rule 924(d)) pursuant to valid Good-TillCancelled instructions issued on a ‘‘not held’’ basis. The Exchange believes that investors will receive greater protection by clarifying the time such discretionary orders remain pending.29 Overall, the Exchange believes the proposed rule changes recognize that options have become more integrated with other securities in the implementation of particular strategies, and thus should not continue to be regulated as though they are a new and experimental product. The Exchange further asserts that the supervisory and compliance structure in place for nonoptions products at most firms is not 26 Proposed Amex Rule 922(b)(2) is modeled after NASD Rule 3110(i). 27 17 CFR 240.17a–4. 28 Proposed Amex Rule 922(b)(3) is modeled after NASD 3110(j). 29 Proposed Amex Rule 924(d) is modeled after NASD Rule 2510(d)(1). VerDate Aug<31>2005 18:33 Mar 24, 2008 Jkt 214001 materially different from the structure in place for options. Accordingly, the Exchange submits that the proposed rule changes are appropriate and would not materially alter the supervisory operations of member firms. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6 of the Exchange Act 30 in general and furthers the objectives of Section 6(b)(5) 31 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. Specifically, the Exchange believes this proposed rule change would achieve these ends by integrating the supervision and compliance functions relating to member organizations’ public customer options activities into their overall supervisory structure, thereby eliminating any uncertainty over where supervisory responsibility lies, and by fostering the strengthening of member organizations’ internal controls and supervisory systems.32 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 not necessary or appropriate in furtherance of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange did not solicit or receive any written comments on 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 30 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 32 Telephone call between Jeffrey Burns, Vice President and Associate General Counsel, Amex, and Haimera Workie, Branch Chief, Office of Chief Counsel, Division of Trading and Markets, SEC, on March 19, 2008. 31 15 PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 15813 (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 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 https://www.sec.gov/ rules/sro.shtml; or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–Amex–2007–129 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 No. SR–Amex–2007–129. 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 at https://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, 100 F Street, NE., Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. 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–Amex–2007–129 and E:\FR\FM\25MRN1.SGM 25MRN1 15814 Federal Register / Vol. 73, No. 58 / Tuesday, March 25, 2008 / Notices should be submitted on or before April 15, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.33 Florence E. Harmon, Deputy Secretary. [FR Doc. E8–5965 Filed 3–24–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57487; File No. SR–CBOE– 2008–28] 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 Exchange 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 Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposal To Make Clean-Up Changes by Amending Certain Rules A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change March 13, 2008. CBOE proposes to make clean-up changes by deleting certain portions of rules containing an obsolete term, replacing a reference to ‘‘Nasdaq-100 Index Tracking Stock’’ with ‘‘PowerShares QQQ Trust,’’ correcting mis-lettering, and making a spelling correction. Deletion of Obsolete Term— ‘‘Board Broker’’. In 2005, the Exchange submitted a rule filing in which the Exchange proposed, among other things, to delete rules or portions thereof pertaining to Board Brokers.5 As explained in that filing, the Exchange had not used Board Brokers for approximately 22 years, and did not intend to use them in the future. Accordingly, the Exchange proposed to delete several rules or portions thereof pertaining to Board Brokers. In the 2005 filing, the Exchange inadvertently omitted Rules 3.1, 6.6, 6.73, 7.6 and 8.7, which still contain references to Board Brokers. In this filing, the Exchange proposes to delete portions of the aforementioned rules that contain references to Board Brokers for the reasons stated in the 2005 filing. Also, the Exchange proposes to make a spelling correction to Interpretation and Policy .01 to Rule 6.6. 1. Purpose 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 March 10, 2008, the Chicago Board Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. The Exchange filed the proposal as a ‘‘non-controversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) 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. mstockstill on PROD1PC66 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change CBOE proposes to make clean-up changes by deleting certain portions of rules containing an obsolete term, replacing a reference to ‘‘Nasdaq-100 Index Tracking Stock’’ with ‘‘PowerShares QQQ Trust,’’ correcting mis-lettering, and making a spelling correction. The text of the rule proposal is available on the Exchange’s Web site (https://www.cboe.org/legal), at the Exchange’s Office of the Secretary and at the Commission. 33 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 1 15 VerDate Aug<31>2005 18:33 Mar 24, 2008 Jkt 214001 5 See Securities Exchange Act Release No. 52824 (November 22, 2005), 70 FR 72318 (December 2, 2005) (SR–CBOE–2005–69). In this filing, the Exchange explained that a Board Broker is an individual member, a nominee of a member organization or a member organization who or which is registered with the Exchange for the purposes of (i) acting as a ‘‘broker’s broker’’ for specified classes of options, at the post at which such classes of options are traded, by accepting and attempting to execute orders placed with him by other members, and (ii) monitoring the market for such classes of options at the post. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 Amend Rule 6.1.03 To Reflect Updated Exchange Traded Fund Name In connection with the March 21, 2007 transfer of sponsorship of the Nasdaq-100 Trust, the name of the trust was changed from the ‘‘Nasdaq-100 Index Tracking Stock’’ to the ‘‘PowerShares QQQ Trust’’ (‘‘QQQQ’’). The Exchange proposes to amend Interpretation and Policy .03 to Rule 6.1 to reflect the updated name of the QQQQ. Correct Mis-Lettering of Rule 4.11.02 The Exchange proposes to correct the mis-lettering of Interpretation and Policy .02 to Rule 4.11, which currently goes from c to e. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements provided under Section 6(b)(5) of the Act,6 that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect investors and the public interest. 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 the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 7 and Rule 19b–4(f)(6) thereunder,8 because the foregoing rule does not (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative prior to 30 days after 6 15 U.S.C. 78(f)(b)(5). U.S.C. 78s(b)(3)(A). 8 17 CFR 240.19b–4(f)(6). 7 15 E:\FR\FM\25MRN1.SGM 25MRN1

Agencies

[Federal Register Volume 73, Number 58 (Tuesday, March 25, 2008)]
[Notices]
[Pages 15810-15814]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-5965]



[[Page 15810]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57527; File No. SR-Amex-2007-129]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of a Proposed Rule Change Relating to an Exchange 
Member's Conduct of Doing Business With the Public

 March 19, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, as amended (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is 
hereby given that on November 29, 2007, the American Stock Exchange LLC 
(``Amex'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been substantially 
prepared by the Exchange. 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)(l).
    \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 Amex proposes to amend certain Amex Rules that govern an 
Exchange member's conduct of doing business with the public. 
Specifically, the proposed rule change would require member 
organizations (also ``member firms'' or ``firms'') to integrate the 
responsibility for supervision of their public customer options 
business into its overall supervisory and compliance programs. In 
addition, the proposal would require member firms to strengthen their 
supervisory procedures and internal controls as related to their public 
customer options business.
    The text of the proposed rule change is available at the Amex, the 
Commission's Public Reference Room and https://www.amex.com.

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 Amex 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 III below. The Amex 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
a. Integration of Options Supervision
    The purpose of the proposed rule change is to create a supervisory 
structure for options that is similar to that required by New York 
Stock Exchange, Inc. (``NYSE'') Rule 342 and National Association of 
Securities Dealers, Inc. (``NASD'') Rule 3010.\3\ The proposed rule 
change would also conform Amex rules to those of the CBOE by 
eliminating the requirement that a member firm, qualified to do a 
public customer business in options, designate a single person to act 
as a Senior Registered Options Principal (``SROP'') for the member 
organization and that each such member organization designate a 
specific individual as a Compliance Registered Options Principal 
(``CROP'').\4\ The Exchange proposes to eliminate the SROP and CROP 
supervisory categories, allowing member firms to supervise their 
options activities through their overall supervisory and compliance 
programs that monitor all other securities products.
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    \3\ On July 26, 2007, the Commission approved a proposed rule 
change filed by NASD to amend NASD's Certificate of Incorporation to 
reflect its name change to Financial Industry Regulatory Authority, 
Inc., or FINRA, in connection with the consolidation of the member 
firm regulatory functions of NASD and NYSE Regulation, Inc. See 
Exchange Act Release No. 56146 (July 26, 2007), 72 FR 42190 (Aug. 1, 
2007). The FINRA rule book currently consists of both NASD rules and 
certain NYSE rules that FINRA has incorporated.
    \4\ See Securities and Exchange Act Release No. 56492 (September 
21, 2007) 72 FR 54952 (September 27, 2007) (SR-CBOE-2007-106).
---------------------------------------------------------------------------

    The SROP concept was first introduced during the early years of 
development of the listed options market. Previously under Amex rules, 
member firms were required to designate one or more persons qualified 
as Registered Options Principals (``ROPs'') to have supervisory 
responsibilities with respect to the firms' options business. As the 
number of ROPs at larger firms began to increase, the Amex imposed an 
additional requirement that member firms designate one of their ROPs as 
the SROP. This was intended to eliminate confusion as to where the 
compliance and supervisory responsibilities lay by centralizing in a 
single supervisory officer overall responsibility for the supervision 
of a firm's options activities.\5\ Subsequently, following the 
recommendation of the Special Study of the Options Market,\6\ the Amex 
and the other options exchanges required firms to designate a CROP to 
be responsible for each firm's overall compliance program with respect 
to its options activities. The CROP could be the same person designated 
as a SROP, but while the CROP generally was not permitted to have sales 
functions in the firm, whereas the SROP was not so restricted.
---------------------------------------------------------------------------

    \5\ Report of the Special Study of the Options Market (``Special 
Study''), p. 316 note 11 (December 22, 1978).
    \6\ Id. at p. 335.
---------------------------------------------------------------------------

    Since the SROP and CROP requirements were first imposed, the 
supervisory function with respect to options activities of most 
securities firms has been integrated into their supervisory function 
matrix for securities activities overall. This not only reflects the 
maturity of the options market, but also recognizes the ways in which 
the uses of options themselves have become more integrated with other 
securities in the implementation of particular strategies. By 
permitting supervision of a firm's options activities to be handled in 
the same manner as the supervision of its securities and futures 
activities, the proposed rule change will ensure that supervisory 
responsibility over each segment of a firm's business is assigned to 
the best qualified persons in the firm, thereby enhancing the overall 
quality of supervision and compliance.
    The proposed rule change will allow firms the flexibility to assign 
such supervisory and compliance responsibilities, which formerly 
resided with the SROP and/or CROP, to more than one individual. For 
example, the proposed rule change will permit a member firm to 
designate certain ROPs to be responsible for a variety of supervisory 
compliance functions such as approving acceptance of discretionary 
accounts \7\; approval of communications to customers \8\ and 
exceptions to a member firm's suitability standards for trading 
uncovered short options.\9\ Firms would be likely to do this in 
instances where the firm believes it advantageous to do so to enhance 
its supervisory or compliance structure. Typically, a firm may also 
wish to divide these functions on the basis of geographic region or 
functional considerations. Amex Rule 920 would be amended to clarify 
the qualification requirements of individuals designated as ROPs and 
also

[[Page 15811]]

to specify the registration requirements of individuals who accept 
orders from non-broker-dealer customers.
---------------------------------------------------------------------------

    \7\ See proposed Amex Rule 924(a) and Commentary .05 to Rule 
920.
    \8\ See proposed Amex Rule 991(b).
    \9\ See proposed Amex Rule 921(g)(3).
---------------------------------------------------------------------------

    With respect to discretionary accounts, the proposal would require 
acceptance of such accounts to be assigned to individuals who are 
qualified ROPs. Further, the proposal would require that the individual 
who reviews the acceptance of a discretionary account (who is an 
individual other than the ROP who accepted the account as required by 
Amex Rule 924(a)) to be Series 4 qualified because such a review is not 
a routine sales supervisory function and requires more in-depth 
knowledge of options than what is covered by the Series 9/10 
examination.\10\ The proposed rule change would eliminate the 
requirement that discretionary options orders be approved on the day of 
entry by a ROP (with one exception as discussed below) because such 
requirement is not consistent with the use of supervisory tools in 
computerized format or exception reports generated after the close of 
trading day. No similar requirement exists for supervision of other 
securities accounts that are handled on a discretionary basis.\11\ 
Discretionary orders would be required to be reviewed in accordance 
with a firm's written supervisory procedures. We believe the proposed 
rule change will ensure that supervisory responsibilities are assigned 
to specific qualified individuals, thereby enhancing the quality of 
supervision.
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    \10\ See supra note 5.
    \11\ See, e.g., NYSE Rule 408.
---------------------------------------------------------------------------

    Amex Rule 924 would be revised by adding as Commentary .01, a 
requirement that any firm that does not utilize computerized 
surveillance tools for the frequent and appropriate review of 
discretionary account activity must establish and implement procedures 
to require ROP-qualified individuals (``Qualified Individuals'') who 
have been designated to review discretionary accounts to approve and 
initial each discretionary order on the day entered. The Exchange 
believes that any firm that does not utilize computerized surveillance 
tools to monitor discretionary account activity should continue to be 
required to perform the daily manual review of discretionary orders.
    Under the proposed rule change, firms would continue to be required 
to designate Qualified Individuals to provide frequent appropriate 
supervisory review of options discretionary accounts.\12\ This review 
includes the requirement that these Qualified Individuals review the 
accounts in order to determine whether the ROP accepting the account 
had a reasonable basis for believing that the customer was able to 
understand and bear the risks of the proposed strategies or 
transactions. This requirement provides an additional level of 
supervisory audit over options discretionary accounts that does not 
exist for other securities discretionary accounts.
---------------------------------------------------------------------------

    \12\ See proposed Amex Rule 924(a).
---------------------------------------------------------------------------

    In addition, the proposed change to Amex Rule 922 would require 
that each member organization provide for the preparation and 
submission of a written annual report to one or more of its control 
persons or, if the firm has no control person, to the audit committee 
of its board of directors or its equivalent group (collectively 
referred to as, ``Control Person''). The firm would be required to 
submit the report to the Exchange and to its Control Person by April 
1st of each year. The firm would be required to detail in the report 
its supervision and compliance effort, including its options compliance 
program, during the preceding year and the adequacy of its ongoing 
compliance processes and procedures.\13\
---------------------------------------------------------------------------

    \13\ See proposed Amex Rules 922(g) and 922(h), which are 
modeled after NYSE Rules 342.30 and 354, respectively.
---------------------------------------------------------------------------

    Proposed Amex Rule 922(g) would further provide that a member 
organization that specifically includes its options compliance program 
in a report that complies with substantially similar NYSE and NASD 
rules will be deemed to have satisfied the requirements of Amex Rules 
922(g) and 922(h).
    Where appropriate, the proposed rule changes would delete 
references to SROP and CROP in Amex Rules 421, 920, 921, 922, 924 and 
991.
    Although the proposed rule change would eliminate entirely the 
positions and titles of SROP and CROP, firms would still be required to 
designate a single general partner or executive officer to assume 
overall authority and responsibility for internal supervision, control 
of the organization and compliance with securities laws and 
regulations.\14\ A firm would also be required to designate specific 
qualified individuals as having supervisory or compliance 
responsibilities over each aspect of the firm's options activities and 
to set forth the names and titles of these individuals in its written 
supervisory procedures.\15\
---------------------------------------------------------------------------

    \14\ See proposed Amex Rule 922(a).
    \15\ See proposed Amex Rule 922(a).
---------------------------------------------------------------------------

    The Exchange is a party to an options sales practice compliance 
plan, amended on March 26, 2007, entered into pursuant to Section 17(d) 
of the Securities Exchange Act of 1934 (the ``1934 Act'') and Rule 17d-
2, promulgated thereunder.\16\ For Exchange members that are also FINRA 
members, the amended plan allocates responsibility for examination and 
enforcement of members' compliance with options sales practice rules 
primarily to FINRA \17\ (the ``Options 17d-2 Plan''). For non-FINRA 
members, the Options 17d-2 Plan provides that the exchange which is the 
Designated Examining Authority (``DEA''), pursuant to Rule 17d-1 under 
the Act, shall perform the regulatory responsibilities designated to it 
in the Options 17d-2 Plan. Under these provisions the Amex currently 
has responsibility for examination and enforcement of options sales 
practice rules as to three members (one of which is a dual member of 
the Philadelphia Stock Exchange and Amex and two Amex only members). 
FINRA will be primarily responsible for options sales practice 
examination and enforcement as to other dual members. In connection 
with the approval of these proposed changes, the Exchange intends to 
closely review written supervisory and compliance procedures of firms, 
for which it is the DEA, in the course of its routine examinations of 
member firms to ensure that supervisory and compliance responsibilities 
are adequately defined.
---------------------------------------------------------------------------

    \16\ Securities Exchange Release Act No. 34-55532 (March 26, 
2007) 72 FR 15729 (April 2, 2007).
    \17\ See, infra, note 3.
---------------------------------------------------------------------------

    The Exchange believes the proposed rule changes will increase 
accountability and eliminate impractical and unrealistic supervisory 
standards applicable solely to listed options. The Exchange believes 
that the proposed rule changes are appropriate and will not materially 
alter the supervisory operations of firms.
    Supervisory Procedures and Internal Controls
b. Supervisory Procedures and Internal Controls
    The Exchange is also proposing to amend certain rules to strengthen 
member firms' supervisory procedures and internal controls relating to 
a member's public customer options business. The proposed rule changes 
discussed below are modeled after NYSE and NASD rules approved by the 
Commission in 2004.\18\ The Exchange

[[Page 15812]]

believes its proposal to strengthen member supervisory procedures and 
internal controls is appropriate and consistent with the proposal 
discussed above to integrate the responsibility for supervision of a 
member firm's public customer options business into its overall 
supervisory and compliance program.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release Nos. 49882 (June 17, 
2004), 69 FR 35108 (June 23, 2004) (SR-NYSE-2002-36) (approval 
order), 49883 (June 17, 2004), 69 FR 35092 (June 23, 2004) (SR-NASD-
2002-162) (approval order).
---------------------------------------------------------------------------

    The Exchange is proposing to revise Amex Rule 922(a)(3) to require 
the development and implementation of written policies and procedures 
reasonably designed to supervise sales managers and other supervisory 
personnel who service customer options accounts.\19\ This requirement 
would apply to branch office managers, sales managers, regional/
district sales managers, or any person performing a similar supervisory 
function. Such policies and procedures are expected to encompass all 
options sales-related activities. Proposed Amex Rule 922(a)(3)(i) would 
require that supervisory reviews of producing sales managers be 
conducted by a qualified ROP who is either senior to, or otherwise 
``independent of,'' the producing manager under review.\20\ This 
provision is intended to ensure that all options sales activity of a 
producing manager is monitored for compliance with applicable 
regulatory requirements by persons who do not have a personal interest 
in such activity.
---------------------------------------------------------------------------

    \19\ Proposed Amex Rule 922(a)(3) is modeled after NYSE Rule 
342.19.
    \20\ An ``otherwise independent'' person is defined in proposed 
Amex Rule 922(a)(3)(i).
---------------------------------------------------------------------------

    Proposed Amex Rule 922(a)(3)(ii) would provide an exception for 
firms so limited in size and resources that there is no qualified 
person senior to, or otherwise independent of, the producing manager to 
conduct the review. In this case, the review would be conducted by a 
qualified ROP to the extent practicable. Under proposed Amex Rule 
922(a)(3)(iii), a member relying on the limited size and resources 
exception must document the factors used to determine that compliance 
with each of the ``senior'' or ``otherwise independent'' standards of 
proposed Amex Rule 922(a)(3)(i) is not possible, and that the required 
supervisory systems and procedures in place with respect to any 
producing manager comply with the provisions of proposed Amex Rule 
922(a)(3)(i) to the extent practicable.\21\
---------------------------------------------------------------------------

    \21\ Proposed Amex Rule 922(a)(3)(iv) would provide that a 
member organization that complies with the NYSE or NASD rules that 
are substantially similar to the requirements in Rules 922(a)(3)(i), 
(a)(3)(ii) and (a)(3)(iii) will be deemed to have met such 
requirements.
---------------------------------------------------------------------------

    Proposed Amex Rule 922(c)(i) would require member organizations to 
develop and maintain adequate controls over each of their business 
activities. The proposed rule would further require that such controls 
include the establishment of procedures to independently verify and 
test the supervisory systems and procedures for those business 
activities. A firm would be required to include in the annual report, 
prepared pursuant to proposed Amex Rule 922(g), a review of the firm's 
efforts in this regard, including a summary of the tests conducted and 
significant exceptions identified. The Exchange believes proposed Amex 
Rule 922(c)(i) would enhance the overall quality of each member 
organization's supervision and compliance function.\22\
---------------------------------------------------------------------------

    \22\ Proposed Amex Rule 922(c)(i) is modeled after NYSE Rule 
342.23. Paragraph (c)(ii) of proposed Amex Rule 922 would provide 
that a member organization that complies with NYSE or NASD rules 
that are substantially similar to the requirements in paragraph 
(c)(i) of proposed Amex Rule 922 will be deemed to have met such 
requirements.
---------------------------------------------------------------------------

    Paragraph (d) of proposed Amex Rule 922 would establish 
requirements for branch office inspections similar to the requirements 
of NYSE Rule 342.24. Specifically Amex Rule 922(d) would require a 
member organization to inspect, at least annually, each supervisory 
branch office and inspect each non-supervisory branch office at least 
once every three years.\23\ The proposed rule would further require 
persons who conduct a firm's annual branch office inspection to be 
independent of the direct supervision or control of the branch office 
(i.e., not the branch office manager, or any person who directly or 
indirectly reports to such manager, or any person to whom such manager 
directly reports). The Exchange believes that requiring branch office 
inspections to be conducted by someone who has no significant financial 
interest in the success of a branch office should lead to more 
objective and vigorous inspections.
---------------------------------------------------------------------------

    \23\ Proposed Amex Rules 922(d)(1)(i) and (ii) would provide 
members with two exceptions from the annual supervisory branch 
office inspection requirement.
---------------------------------------------------------------------------

    Under proposed Amex Rule 922(e), any firm seeking an exemption, 
pursuant to Rule 922(d)(1)(ii), from the annual branch office 
inspection requirement would be required to submit to the Exchange 
written policies and procedures for systematic risk-based surveillance 
of its branch offices, as defined in Rule 922(e). Proposed Amex Rule 
922(f) would require the annual branch office inspection programs to 
include, at a minimum, testing and verification of specified internal 
controls.\24\ Proposed Amex Rule 922(d)(3) would provide that a firm 
that complies with the requirements of NASD or the NYSE that are 
substantially similar to the requirements of Rules 922(d), (e) and (f) 
will be deemed to have met such requirements. The Exchange is also 
proposing to amend Commentary .04 of Amex Rule 922 to define ``branch 
office'' in a way that is substantially similar to the definition of 
branch office in NYSE Rule 342.10.
---------------------------------------------------------------------------

    \24\ Proposed Rules 922(e) and (f) are modeled after NYSE Rules 
342.25 and 342.26, respectively.
---------------------------------------------------------------------------

    Proposed Amex Rule 922(g)(4) would require a firm to designate a 
Chief Compliance Officer (CCO). Proposed Rule 922(g)(5) would require 
each firm's Chief Executive Officer (CEO), or equivalent, to certify 
annually that the member organization has in place processes to (1) 
establish and maintain policies and procedures reasonably designed to 
achieve compliance with applicable Exchange rules and federal 
securities laws and regulations, (2) modify such policies and 
procedures as business, regulatory, and legislative changes and events 
dictate, and (3) test the effectiveness of such policies and procedures 
on a regular basis, the timing of which is reasonably designed to 
ensure continuing compliance with Exchange rules and federal securities 
laws and regulations.
    Proposed Amex Rule 922(g)(5) would also require the CEO to attest 
(1) that he or she has conducted one or more meetings with the CCO in 
the preceding 12 months to discuss the compliance processes in proposed 
Rule 922(g)(5)(i), (2) that he or she has consulted with the CCO and 
other officers to the extent necessary to attest to the statements in 
the certification, and (3) that the compliance processes are evidenced 
in a report, reviewed by the CEO, CCO and such other officers as the 
member firm deems necessary to make the certification, that is provided 
to the member firm's board of directors and audit committee (if such 
committee exists).\25\
---------------------------------------------------------------------------

    \25\ Proposed Amex Rule 922(g)(5) is modeled after NASD Rule 
3013 and NYSE Rule 342.30(e).
---------------------------------------------------------------------------

    Under proposed Amex Rule 922(b)(2), a member, upon a customer's 
written instructions, may hold mail for a customer who will be away 
from his or her usual address for no longer than two months if the 
customer is on vacation or traveling, or three months if the customer 
is going abroad. This provision would help ensure that members that 
hold mail, for customers who are away from their usual addresses, do so 
only pursuant to the

[[Page 15813]]

customer's written instructions and for a specified, relatively short 
period of time.\26\
---------------------------------------------------------------------------

    \26\ Proposed Amex Rule 922(b)(2) is modeled after NASD Rule 
3110(i).
---------------------------------------------------------------------------

    Proposed Amex Rule 922(b)(3) would require that, before a customer 
options order is executed, the account name or designation must be 
placed upon the memorandum for each transaction. In addition, only a 
Qualified Individual would be permitted to approve any changes in 
account names or designations. The ROP would be required to document 
the essential facts relied upon in approving the changes and maintain 
the record in an easily accessible place. A member would be required to 
preserve any documentation which provides for an account designation 
change for a period of not less than three years, with the 
documentation preserved for the first two years in an easily accessible 
place, as the term ``easily accessible place'' is used in Rule 17a-4 of 
the Act.\27\ The Exchange believes the proposed rule would help to 
protect account name and designation information from possible 
fraudulent activity.\28\
---------------------------------------------------------------------------

    \27\ 17 CFR 240.17a-4.
    \28\ Proposed Amex Rule 922(b)(3) is modeled after NASD 3110(j).
---------------------------------------------------------------------------

    Amex Rule 924(d) allows firms to exercise time and price discretion 
on orders for the purchase or sale of a definite number of options 
contracts in a specified security. The Exchange proposes to amend Amex 
Rule 924(d) to limit the duration of this discretionary authority to 
the day it is granted, absent written authorization to the contrary. In 
addition, the proposed rule would require any exercise of time and 
price discretion to be reflected on the customer order ticket. The 
proposed one-day limitation would not apply to time and price 
discretion exercised for orders effected with or for an institutional 
account (as defined in Rule 924(d)) pursuant to valid Good-Till-
Cancelled instructions issued on a ``not held'' basis. The Exchange 
believes that investors will receive greater protection by clarifying 
the time such discretionary orders remain pending.\29\
---------------------------------------------------------------------------

    \29\ Proposed Amex Rule 924(d) is modeled after NASD Rule 
2510(d)(1).
---------------------------------------------------------------------------

    Overall, the Exchange believes the proposed rule changes recognize 
that options have become more integrated with other securities in the 
implementation of particular strategies, and thus should not continue 
to be regulated as though they are a new and experimental product. The 
Exchange further asserts that the supervisory and compliance structure 
in place for non-options products at most firms is not materially 
different from the structure in place for options. Accordingly, the 
Exchange submits that the proposed rule changes are appropriate and 
would not materially alter the supervisory operations of member firms.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Exchange Act \30\ in general and furthers the 
objectives of Section 6(b)(5) \31\ in particular in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes this proposed rule change would 
achieve these ends by integrating the supervision and compliance 
functions relating to member organizations' public customer options 
activities into their overall supervisory structure, thereby 
eliminating any uncertainty over where supervisory responsibility lies, 
and by fostering the strengthening of member organizations' internal 
controls and supervisory systems.\32\
---------------------------------------------------------------------------

    \32\ Telephone call between Jeffrey Burns, Vice President and 
Associate General Counsel, Amex, and Haimera Workie, Branch Chief, 
Office of Chief Counsel, Division of Trading and Markets, SEC, on 
March 19, 2008.
---------------------------------------------------------------------------

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 not necessary or appropriate in 
furtherance of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange did not solicit or receive any written comments on 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 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 
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 https://
www.sec.gov/rules/sro.shtml; or
     Send an e-mail to rulecomments@sec.gov. Please include 
File No. SR-Amex-2007-129 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 No. SR-Amex-2007-129. 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 at https://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, 100 F Street, NE., 
Washington, DC 20549 on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. 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-Amex-2007-129 and

[[Page 15814]]

should be submitted on or before April 15, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5965 Filed 3-24-08; 8:45 am]
BILLING CODE 8011-01-P
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