Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change To Provide for Issuance of Interim Trading Permits, 20989-20994 [E8-8278]
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Federal Register / Vol. 73, No. 75 / Thursday, April 17, 2008 / Notices
Systems Capacity
IV. Solicitation of Comments
CBOE represents that it believes the
Exchange and the Options Price
Reporting Authority have the necessary
systems capacity to handle the
additional traffic associated with the
listing and trading of binary options as
proposed herein. CBOE does not
anticipate that there would be any
additional quote mitigation strategy
necessary to accommodate the trading of
binary options.
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:
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations under the
Act applicable to a national securities
exchange and, in particular, the
requirements of Section 6(b) of the Act.
Specifically, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 8 requirements that
the rules of an exchange be designed to
promote just and equitable principles of
trade, to prevent fraudulent and
manipulative acts, to remove
impediments to and to perfect the
mechanism for a free and open market
and a national market system, 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 would 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.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
8 15
Electronic Comments
17:08 Apr 16, 2008
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–8232 Filed 4–16–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
• 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
Number SR–CBOE–2006–105 on the
subject line.
[Release No. 34–57650; File No. SR–CBOE–
2008–40]
Paper Comments
April 11, 2008.
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change To Provide for
Issuance of Interim Trading Permits
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’ or ‘‘Exchange Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on April 9, 2008, the Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
All submissions should refer to File
Securities and Exchange Commission
Number SR–CBOE–2006–105. This file
(‘‘Commission’’) the proposed rule
number should be included on the
subject line if e-mail is used. To help the change as described in Items I, II, and
III below, which Items have been
Commission process and review your
prepared by CBOE. The Commission is
comments more efficiently, please use
publishing this notice to solicit
only one method. The Commission will
comments on the proposed rule change
post all comments on the Commission’s
from interested persons.
Internet Web site (https://www.sec.gov/
I. Self-Regulatory Organization’s
rules/sro.shtml). Copies of the
Statement of the Terms of Substance of
submission, all subsequent
the Proposed Rule Change
amendments, all written statements
with respect to the proposed rule
CBOE is filing this proposed rule
change that are filed with the
change to provide for the issuance of up
Commission, and all written
to 50 Interim Trading Permits.3 The text
of the proposed rule change is available
communications relating to the
on CBOE’s Web site (https://
proposed rule change between the
Commission and any person, other than www.cboe.org/Legal), at CBOE’s Office
of the Secretary, and at the
those that may be withheld from the
Commission’s Public Reference Room.
public in accordance with the
provisions of 5 U.S.C. 552, will be
II. Self-Regulatory Organization’s
available for inspection and copying in
Statement of the Purpose of, and
the Commission’s Public Reference
Statutory Basis for, the Proposed Rule
Room, 100 F Street, NE., Washington,
Change
DC 20549, on official business days
In its filing with the Commission,
between the hours of 10 a.m. and 3 p.m. CBOE included statements concerning
Copies of the filing also will be available the purpose of, and basis for, the
for inspection and copying at the
proposed rule change and discussed any
principal office of the Exchange. All
comments it received on the proposed
comments received will be posted
without change; the Commission does
17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
not edit personal identifying
2 17 CFR 240.19b–4.
information from submissions. You
3 Under Sections 2.1(a) and 12.1 of its
should submit only information that
Constitution, CBOE must obtain, but has not yet
you wish to make available publicly. All obtained, membership approval for the issuance of
submissions should refer to File
the Interim Trading Permits and the amendments to
its Constitution contemplated in this proposed rule
Number SR–CBOE–2006–105 and
change. Once it has obtained that membership
should be submitted on or before May
approval, CBOE plans to file a technical
8, 2008.
amendment to this proposed rule change to reflect
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–1090.
U.S.C. 78f(b)(5).
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that approval.
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Federal Register / Vol. 73, No. 75 / Thursday, April 17, 2008 / Notices
rule change. The text of these statements
may be examined at the places specified
in Item IV below. 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 the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange is filing this proposed
rule change to provide for the issuance
of up to 50 Interim Trading Permits.
These permits will grant the same
trading privileges on the Exchange as
transferable Exchange memberships.
The Exchange is seeking the authority to
issue these permits to address the
demand for trading access to the
Exchange to the extent that a shortage
exists from time to time in the number
of transferable Exchange memberships
available for lease. Issuances of Interim
Trading Permits under Proposed Rule
3.27(b).
Under proposed Rule 3.27(b), the
Exchange may issue one or more Interim
Trading Permits, subject to the limit on
the number of such permits, to address
shortages in the number of transferable
memberships available for lease.
Consistent with this purpose, such
permits may be issued only if the
Exchange determines in its sole
discretion that there are insufficient
transferable Exchange memberships
available for lease at that time at a rate
reasonably related to the indicative
lease rate to meet existing demand for
such leases,4 and that it would be in the
interest of fair and orderly markets to
provide additional trading access under
the circumstances (collectively, the
‘‘issuance findings’’).5
4 The ‘‘indicative lease rate’’ will be the highest
‘‘clearing firm floating monthly rate’’ of the Clearing
Members that assist in facilitating at least 10% of
the transferable membership leases. The ‘‘clearing
firm floating monthly rate’’ will be the floating rate
that a Clearing Member designates, in connection
with transferable membership leases that the
Clearing Member assisted in facilitating, for leases
that utilize that monthly rate. This is based on the
method the Exchange currently is using to
determine the access fee for persons who are
Temporary Members under Interpretation and
Policy .02 of Rule 3.19. See, e.g., Securities
Exchange Act Release No. 57411 (March 3, 2008),
73 FR 12478 (March 7, 2008) (notice of filing and
immediate effectiveness of File No. SR–CBOE–
2008–25).
5 The reference to this last finding does not imply
that the Exchange’s markets might not be fair and
orderly if there were insufficient permits to satisfy
completely the additional demand for trading
access. Instead, this finding ensures that additional
permits are not issued—regardless of the extent of
such demand—if the issuance of such permits
would be contrary to the interests of a fair and
orderly market.
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In the event that circumstances justify
the issuance findings and the Exchange
consequently determines to issue
Interim Trading Permits, the Exchange
will announce the number of Interim
Trading Permits that the Exchange
determines to make available (limited
by the number that are available for
issuance), that the Exchange is taking
applications for such permits, the
process the Exchange will follow in
issuing such permits (described in the
bullets below), and the beginning and
ending dates during which period of
time individuals and organizations must
submit applications for such permits.
An individual or organization must be
approved and satisfy all requirements
for membership in the Exchange to be
eligible to apply for an Interim Trading
Permit to be issued under proposed
Rule 3.27(b). In addition, an individual
will be eligible to receive no more than
one Interim Trading Permit in
connection with a particular issuance of
Interim Trading Permits pursuant to
proposed Rule 3.27(b), with a maximum
of eight such permits for a member
organization and individuals and
member organizations affiliated with the
member organization in connection
with that issuance.
Each issuance of Interim Trading
Permits pursuant to proposed Rule
3.27(b) will occur in accordance with
one of the following objective processes:
• Random Lottery Process. After the
deadline for applications has passed,
the Exchange, through a random lottery
process, will issue a number of Interim
Trading Permits to applicants equal to
the number of Interim Trading Permits
that the Exchange announced it would
make available.
• Order in Time Process. After the
deadline for applications has passed,
the Exchange will issue an Interim
Trading Permit to each applicant who
applied for such a permit in the order
in time that such applicant applied,
until the number of Interim Trading
Permits that the Exchange announced it
would make available have been issued.
• Other Process. The Exchange will
have the authority to modify the
processes described above or to
establish any other process to issue
Interim Trading Permits pursuant to a
rule filing submitted to the Commission
under Section 19(b) of the Exchange
Act.6
The Exchange believes that these
processes will provide for the issuance
of Interim Trading Permits in an
objective manner and consequently will
provide for fair access to the Exchange.
At the same time, the Exchange will
6 15
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U.S.C. 78s(b).
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have the flexibility to determine which
process it will follow in connection
with a particular issuance of permits.
The Exchange believes that this
flexibility is needed to allow it to
determine the most efficient way to
issue Interim Trading Permits in any
given situation.
Overall, the Exchange believes that
the ability to issue Interim Trading
Permits provides the Exchange with the
ability to address, from time to time,
situations in which the demand for full
trading access to the Exchange exceeds
the supply of transferable memberships
available for lease. In light of that
justification, proposed CBOE Rule
3.27(b) only allows Interim Trading
Permits to be issued in circumstances
when the Exchange is able to make the
issuance findings. Increasing the
number of market participants in that
situation should promote market
liquidity and help promote the fair and
orderly character of CBOE’s markets.
Requirements for Maintaining Interim
Trading Permits
Recipients of Interim Trading Permits
and all of their associated persons must
remain in compliance with paragraph (f)
of proposed CBOE Rule 3.27. In
particular, subparagraph (f)(ii) of
proposed CBOE Rule 3.27 provides that
they must remain in good standing and
must pay all applicable fees, dues,
assessments and other like charges
assessed against CBOE members.
Further, subparagraph (f)(i) of proposed
CBOE Rule 3.27 provides that holders of
Interim Trading Permits and all of their
associated persons are 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.7
In addition, holders of Interim
Trading Permits must pay to the
Exchange a monthly access fee. This
monthly access fee will be established
and adjusted through proposed rule
change(s) that will be filed with the
Commission under Section 19(b)(3)(A)
of the Act.8 The monthly access fee will
be due and payable in accordance with
the provisions of the Exchange Fee
Schedule and will be the same for all
Interim Trading Permit holders.
7 In this regard, for instance, Interim Trading
Permits may be suspended or revoked as a result
of a disciplinary action under the amendments
proposed for Rule 17.1.
8 15 U.S.C. 78s(b)(3)(A).
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Nature of Rights Under Interim Trading
Permits
As provided in subparagraph (e)(i) of
proposed CBOE Rule 3.27, the holder of
an Interim Trading Permit will enjoy the
same trading privileges on the Exchange
as the holder of a transferable Exchange
membership. Those rights include the
right to trade on the CBOE Stock
Exchange (‘‘CBSX’’) and, as provided in
Rule 3.29, the trading rights on the
Exchange necessary to become a
member of OneChicago, LLC. This
subparagraph also provides that an
organization that holds an Interim
Trading Permit or that has an Interim
Trading Permit registered for it shall be
treated the same as a ‘‘member
organization’’ for purposes of the
Rules.9 As provided in subparagraph
(g)(iii) of proposed CBOE Rule 3.27, an
Interim Trading Permit will be nontransferable, except that in a form and
manner prescribed by the Exchange (1)
a member organization may change the
designation of the nominee in respect of
each Interim Trading Permit it holds,
and (2) an individual Interim Trading
Permit holder at any time after the
issuance of that Interim Trading Permit
may transfer that Interim Trading Permit
to a member organization with which
such individual is then associated.
Under proposed Section 2.6 of the
Constitution and subparagraph (g)(i) of
proposed CBOE Rule 3.27, Interim
Trading Permit holders will have the
same voting and petition rights as
regular members, except that Interim
Trading Permit holders will have no
right to vote or petition concerning (1)
issues that relate to Exchange ownership
matters, including without limitation
those matters related to
demutualization, mergers,
consolidations, dissolution, liquidation,
transfer, or conversion of assets of the
Exchange, and (2) matters that relate to
Article Fifth(b).10 Similarly, under
9 The Exchange notes that this provision is
limited to the Rules and is subject to the conditions
imposed on Interim Trading Permit holder status in
the Constitution and Rules, including proposed
Section 1.1(b) of the Constitution and proposed
Rule 3.27(e)(i).
10 Under proposed Section 1.1(b) of the
Constitution and proposed Rule 3.27(e)(i), Interim
Trading Permit holders in good standing would be
treated the same as members, except as provided in
proposed Sections 2.1(c) and 2.6 of the
Constitution, and except for purposes of paragraph
(b) of Article Fifth of the Certificate of
Incorporation, Article Tenth of the Certificate of
Incorporation, proposed Section 4.1(a) of the
Constitution, proposed Section 6.1(a) of the
Constitution, and as may be provided in the Rules.
Proposed Rule 3.27(e)(i) further provides that
Interim Trading Permit holders would be treated
the same as members (except as described in the
preceding sentence) notwithstanding any references
in the Rules suggesting that Interim Trading Permit
holders are members under the Rules.
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proposed Section 2.1(c) of the
Constitution and subparagraph (g)(ii) of
proposed CBOE Rule 3.27, Interim
Trading Permit holders will have no
interest in the assets or property of the
Exchange, and will have no right to
share in any distribution by the
Exchange.11
To address the fair representation
requirements in Section 6(b)(3) of the
Exchange Act,12 proposed Section 4.1(a)
of the Constitution provides that an
Interim Trading Permit holder, or an
officer of an Interim Trading Permit
holder, will be eligible to serve on the
Nominating Committee in one of the six
floor member and firm member
positions on the Nominating Committee,
notwithstanding the fact that the holder
of an Interim Trading Permit is not a
regular member or an officer of a regular
member. In addition, under proposed
Section 6.1(a) of the Constitution, an
Interim Trading Permit holder or the
executive officer of an Interim Trading
Permit holder will be eligible to serve in
one of the at-large director positions on
the Board of Directors of the
Exchange.13 To clarify that an Interim
Trading Permit holder will be able to
serve only as an at-large director,
proposed Rule 3.27(h)(iii) provides that
the holding of an Interim Trading
Permit does not satisfy the requirement
in Section 6.1(a) of the Constitution to
own and control a membership for
purposes of the definitions of floor
director and lessor director in that
section. Finally, proposed Rule
3.27(e)(i) provides that, except as
provided in the Constitution, an Interim
Trading Permit holder will be eligible to
serve on any Exchange committee to the
same extent that a member can serve on
that committee.
Duration of Interim Trading Permits and
Transfer of Interim Trading Permit
Holders to Open Leases
As provided in paragraph (c) of
proposed CBOE Rule 3.27, an Interim
11 The Exchange notes that the provisions
described in this paragraph and the following
paragraph addressing the voting and representation
rights of Interim Trading Permit holders are
virtually identical to the provisions addressing the
voting and representation rights provided to CBSX
Permit holders that were approved by the
Commission in connection with a previous
Exchange rule filing. See Securities Exchange Act
Release No. 55326 (February 21, 2007), 72 FR 8816
(February 27, 2007) (order approving File No. SR–
CBOE–2006–107). The Exchange also notes that
proposed CBOE Rule 3.27 is similar to the CBSX
Permit holder rule, CBOE Rule 3.26, which the
Commission approved in connection with that
filing.
12 15 U.S.C. 78f(b)(3).
13 The Exchange also proposes to amend Section
6.1(a) to remove references to a transitional period
that are no longer needed because that period has
passed.
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20991
Trading Permit will remain in effect
until the earlier of one of the following
events: (i) A transaction is
consummated pursuant to which either
CBOE is converted into a stock
corporation or memberships in CBOE
are converted into stock (collectively, a
‘‘Demutualization Transaction’’), (ii) the
holder of the Interim Trading Permit
notifies the Exchange in a form and
manner prescribed by the Exchange that
the holder is terminating that Interim
Trading Permit, (iii) the Interim Trading
Permit is terminated as a result of a
regulatory action by the Exchange,14 or
(iv) the Exchange terminates all Interim
Trading Permits through a rule filing
approved by the Commission pursuant
to Section 19(b) of the Act.15
Subparagraph (e)(ii) of proposed Rule
3.27 provides that, in the event of a
Demutualization Transaction, holders of
Interim Trading Permits will be
guaranteed to receive trading permits on
the same terms as holders of transferable
Exchange memberships who are eligible
to receive trading permits in connection
with that transaction. This guarantee
ensures that there is no disruption in
trading access in the event of such a
Demutualization Transaction and
thereby helps promote the fair and
orderly character of the Exchange’s
markets and helps ensure that holders of
Interim Trading Permits are treated
fairly in such a transaction and are not
unfairly deprived of trading access to
the Exchange.
Because Interim Trading Permits can
be issued to provide trading access
under specified conditions, those
permits should continue to be available
for those purposes if they no longer are
being used by their original recipients.
Accordingly, paragraph (c) of proposed
Rule 3.27 provides that the Exchange
may reissue an Interim Trading Permit
that has been terminated. This
paragraph also incentivizes holders to
terminate their permits early in the
month so that the Exchange is in a
position to reissue those permits at the
end of the month. In particular, this
paragraph requires a holder of an
Interim Trading Permit, if the holder
fails to notify the Exchange that the
holder is terminating that Interim
Trading Permit by the fifteenth day of
the month, to pay to the Exchange an
amount equal to the following month’s
monthly access fee for an Interim
Trading Permit.
Under paragraph (d) of proposed Rule
3.27, the Exchange will endeavor to
14 For example, an Interim Trading Permit may be
revoked as a result of a disciplinary action under
the amendments proposed for Rule 17.1.
15 15 U.S.C. 78s(b).
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facilitate the transfer of holders of
Interim Trading Permits to transferable
memberships that are available for lease.
In connection with determining to issue
Interim Trading Permits, the Exchange
sought and received oral feedback from
the Exchange’s Lessors Committee.
Certain participants on that committee
expressed the concern that the issuance
of Interim Trading Permits potentially
could have a negative affect on the lease
market by reducing the demand for
leases. This transfer provision is
designed to address that concern.
In particular, paragraph (d) of
proposed Rule 3.27 will be triggered if
the Exchange is notified by one or more
lessors that they have transferable
Exchange memberships available for
lease (‘‘open leases’’) at a rate
reasonably related to the indicative
lease rate, as determined by the
Exchange in its sole discretion. It could
distort the lease market for Interim
Trading Permits to be outstanding while
open leases are available at such a rate,
so it is appropriate for the Exchange to
endeavor to facilitate the transfer of
holders of Interim Trading Permits to
those open leases.
Accordingly, paragraph (d) of
proposed Rule 3.27 provides that, in the
event the Exchange receives
notifications from lessors that they have
open leases, the Exchange will notify
each Interim Trading Permit holder of
the number of open leases and the
names of the lessors with those open
leases. As part of that notification by the
Exchange, the Exchange will advise
each Interim Trading Permit holder that
the holder may contact those lessors if
the holder is interested in transferring to
an open lease.16 The Exchange notes
that a transfer to an open lease is
entirely voluntary for Interim Trading
Permit holders.17
If, after a reasonable period of time
following this process, a lessor notifies
the Exchange that the lessor continues
to have an open lease, the Exchange
shall compensate that lessor through a
monthly payment equal to the
indicative lease rate, provided that
lessor is offering for lease the
transferable membership subject to the
open lease at a rate reasonably related
to the indicative lease rate, as
determined by the Exchange in its sole
16 The Exchange also will provide such a
notification to each person who is a Temporary
Member under Interpretation and Policy .02 of Rule
3.19.
17 The Exchange also notes that a transfer to an
open lease is entirely voluntary for Temporary
Members.
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discretion.18 If the indicative lease rate
changes, the Exchange may modify that
monthly payment from time to time so
that the payment is equal to that rate.
The Exchange has included this
compensation provision to address the
potential impact that Interim Trading
Permits may have on the lease market.
As mentioned above, certain
participants on the Lessors Committee
vocalized concern that Interim Trading
Permits potentially could negatively
affect the lease market by reducing
demand for leases. The Exchange
believes that this provision is designed
to address that concern.
In the event the Exchange
compensates a lessor in this situation,
the Exchange will not enter into, nor be
deemed to have entered into, a lease or
other agreement with that lessor.
Accordingly, the Exchange will have no
rights with respect to that lessor’s
membership, including without
limitation the right to trade on the
Exchange or the right to vote. The lessor
may at any time thereafter lease that
membership to any qualified individual
or organization and will be required to
notify the Exchange in the event of such
a lease. The Exchange will cease
compensating the lessor if it receives
such a notification or otherwise learns
the lessor has leased that membership,
and may recoup from the lessor any
compensation paid pursuant to
proposed Rule 3.27(d) to the lessor for
any period of time during which the
lessor has leased that membership. The
Exchange has added this provision to
clarify that it will have no rights with
respect to that membership, and that a
lessor may enter into a lease agreement
at any time.
The Exchange also may cease
compensating that lessor if the
Exchange learns an offer to lease that
membership at a rate reasonably related
to the indicative lease rate, as
determined by the Exchange in its sole
discretion, has been declined by that
lessor. This provision has been added to
provide that lessor with an incentive to
lease that membership if the
opportunity arises. Consistent with the
purpose of this transfer provision to
assist in filling open leases, the
Exchange does not want to be in a
position of perpetually compensating
certain lessors in the event they have
opportunities to lease their
memberships.
Finally, in the event that the number
of lessors receiving compensation
pursuant to this provision becomes
18 The
‘‘indicative lease rate’’ will be determined
in accordance with proposed Rule 3.27(b). See
supra note 4.
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greater than the number of outstanding
Interim Trading Permits, the Exchange
will compensate each such lessor, on a
monthly basis, in an amount equal to
the current indicative lease rate, as
determined by the Exchange in its sole
discretion, times the number of holders
of such permits divided by the number
of such lessors.19 The Exchange believes
this provision is necessary to address
the scenario in which the number of
open leases exceeds the number of
Interim Trading Permits. Under this
scenario, the number of open leases
over-and-above the number of
outstanding permits would indicate a
lack of demand for trading access to the
Exchange beyond what is being satisfied
by Interim Trading Permits. Any
compensation the Exchange may pay
pursuant to proposed Rule 3.27(d) is not
intended to be a substitute for that lack
of demand for trading access, and
therefore the Exchange has determined
in this scenario to compensate lessors
on a pro-rata basis from fees paid by
Interim Trading Permit holders.
Conforming Changes
The Exchange has made certain
conforming changes in its Rules to
ensure that individuals and
organizations that receive Interim
Trading Permits under proposed Rule
3.27 can conduct their activities in a
manner similar to holders of Exchange
memberships. In particular,
subparagraph (h)(ii) of proposed Rule
3.27 provides that an individual Interim
Trading Permit holder will have the
same ability to register that Interim
Trading Permit for a member
organization as the holder of an
Exchange membership has to register
that membership for a member
organization under Rule 3.8(c). In
addition, that same subparagraph
provides that all Rules that apply to an
individual member registering a
membership for a member organization,
or that apply to a member organization
that has a membership registered for it,
shall also be deemed to apply to an
individual Interim Trading Permit
holder who has registered that Interim
Trading Permit for a member
organization, and to a member
organization that has an Interim Trading
Permit registered for it. Rule 3.8 also has
been amended to allow member
organizations holding Interim Trading
Permits to designate individual
nominees and inactive nominees with
respect to those permits.
19 As a corollary to this provision, the Exchange
will cease compensating such lessors during any
period when there are no Interim Trading Permits
currently outstanding.
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Similarly, subparagraph (h)(i)(A) of
proposed Rule 3.27 provides that an
Interim Trading Permit will be counted
as one membership for purposes of the
Participation Entitlement provisions in
Rule 6.45A(a)(i)(C)(1) and Rule
6.45B(a)(ii)(C)(1). In addition,
subparagraph (h)(i)(B) of proposed Rule
3.27 provides that an Interim Trading
Permit will be counted as one
membership for purposes of the
appointment costs provisions in Rule
8.3(c)(v), Rule 8.85(e) and Rule 8.92(d).
Notwithstanding the similar treatment
of an Interim Trading Permit and a
membership for these purposes,
subparagraph (h)(i)(A)–(B) also provide
that an Interim Trading Permit will not
satisfy the requirements in Rule 8.85(e)
and Rule 8.92(d) that a DPM or an eDPM own at least one membership.20
This is consistent with the original
purpose of the DPM and e-DPM
membership ownership requirement,
which was to require that DPMs and eDPMs own, instead of lease, at least one
Exchange membership in order to
ensure that they have a long-term
commitment to the Exchange. As
discussed above, an Interim Trading
Permit holder will have no interest in
the assets or property of the Exchange,
and will have no right to share in any
distribution by the Exchange.
In order further to assure that holders
of Interim Trading Permits can conduct
their trading activities in a manner
similar to the holders of Exchange
memberships, subparagraph (h)(i)(C) of
proposed Rule 3.27 provides that an
Interim Trading Permit will be treated
as a separate membership for purposes
of the pilot programs referenced in Rule
8.3(c)(vii)(1), Rule 8.3(c)(vii)(2), Rule
8.85(a)(v), Rule 8.93(vii), and
subparagraph (b)(viii) of the Guidelines
for Exemptive Relief Under Rule 8.91(e)
for Members Affiliated with DPMs.
These pilot programs allow one MarketMaker affiliated with another MarketMaker, an Off-Floor DPM or an e-DPM
to trade in open-outcry in any specific
option class allocated to that MarketMaker, Off-Floor DPM or e-DPM,
provided such Market-Maker trades on
a separate membership. Further,
subparagraph (h)(i)(D) of proposed Rule
3.27 provides that an individual Interim
Trading Permit holder may satisfy the
qualification requirements to be a DPM
Designee or SBT DPM Designee as set
forth in Rule 8.81(b)(ii) and Rule
44.11(b)(2) by registering the Interim
20 Proposed Interpretation and Policy .04 of Rule
8.85 and proposed Interpretation and Policy .01 of
Rule 8.92 specifically provide that an Interim
Trading Permit does not satisfy the membership
ownership requirements in those Rules.
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17:08 Apr 16, 2008
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Trading Permit for a DPM or SBT DPM
or an affiliate of the DPM or SBT DPM.
This subparagraph also provides that a
DPM may satisfy the requirement in
Rule 8.81(d) by having DPM Designees
who have registered their Interim
Trading Permits for the DPM.
Other conforming changes have been
made to the Rules such that certain
requirements related to the holders of
memberships will apply to the holders
of Interim Trading Permits. In
particular, under proposed Rule 3.2(c),
individual Interim Trading Permit
holders will be required to have
authorized trading functions. In
addition, proposed Rule 3.3(c) provides
that the holding of an Interim Trading
Permit satisfies the requirement in that
Rule that Clearing Members and order
service firms possess at least one
membership. Further, under proposed
Rule 3.19, the membership status of an
Interim Trading Permit holder will
automatically terminate at such time
that person, among other things, does
not hold an Interim Trading Permit.
Under this rule, the Exchange also will
have the authority to permit such a
person to retain that membership status
under certain circumstances to enable
that person to obtain, among other
things, another Interim Trading Permit
(subject to the requirements in proposed
Rule 3.27). Also, individual Interim
Trading Permit holders under proposed
Rule 3.24 will be eligible for the
member death benefit.
Finally, the Rules have been amended
to preserve the Exchange’s regulatory
authority under the Exchange Act and
the Constitution and Rules of the
Exchange. In particular, the Exchange
will have the authority under proposed
Rule 2.23 to revoke an Interim Trading
Permit if the holder fails to pay any
dues, fees, assessments, charges, fines,
or other amounts due to the Exchange
within six months after such payment is
due. In addition, the Exchange will have
the authority under proposed Rules
16.3(c) and 16.4 to suspend or revoke
the Interim Trading Permit of a holder
that experiences financial difficulty.
The Exchange also will have the
authority under proposed Rule 17.1 to
suspend or revoke an Interim Trading
Permit if the holder has been
disciplined by the Exchange.
Clarifying Changes Related to CBOE
Stock Exchange Permits
In amending the Constitution and
Rules to provide for the issuance of
Interim Trading Permits, the Exchange
determined to make certain changes to
clarify how CBOE Stock Exchange
Permits currently are treated under the
Certificate of Incorporation,
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
20993
Constitution, and Rules. The Exchange
believes that these changes are nonsubstantive in nature because they make
explicit the way CBOE Stock Exchange
Permits and the holders of such permits
currently are treated and do not modify
the rights of the holders of such permits.
In particular, the Exchange has
amended Section 1.1 of the Constitution
to specifically provide that, rather than
being defined as members, CBOE Stock
Exchange Permit holders will be treated
the same as members, except as
provided in Sections 2.1(d) and 2.6 of
the Constitution, and except for
purposes of paragraph (b) of Article
Fifth of the Certificate of Incorporation,
Article Tenth of the Certificate of
Incorporation, Section 4.1(a) of the
Constitution, Section 6.1(a) of the
Constitution, and as may be provided in
the Rules. The Exchange also is
proposing a conforming amendment in
Rule 3.26(c) to provide that CBOE Stock
Exchange Permit holders are treated the
same as members (except as described
above), rather than being ‘‘deemed’’
members, for purposes of the Certificate
of Incorporation, Constitution, and
Rules. Similarly, the Exchange is
proposing to amend this paragraph to
provide that CBOE Stock Exchange
Permit holders shall be treated the same
as members (except as described above)
notwithstanding any references in the
Rules suggesting that CBOE Stock
Exchange Permit holders are members
under the Rules. In addition, the
Exchange is proposing to amend this
paragraph to clarify that an organization
that holds a CBSX Permit or that has a
CBSX Permit registered for it shall be
treated the same as a ‘‘member
organization’’ for purposes of the Rules.
Further, the Exchange is proposing to
amend Rule 3.26(e)(i) to clarify that the
holding of a CBSX Permit does not
satisfy the requirement in Section 6.1(a)
of the Constitution to own and control
a membership for purposes of the
definitions of floor director and lessor
director in that section.
The Exchange also has proposed to
amend Rule 2.23 to clarify that the
Exchange has the authority to revoke a
CBOE Stock Exchange Permit if the
holder fails to pay any dues, fees,
assessments, charges, fines, or other
amounts due to the Exchange within six
months after such payment is due.
Similarly, the Exchange has proposed to
amend Rules 16.3(c) and 16.4 to clarify
that the Exchange has the authority to
suspend or revoke the CBOE Stock
Exchange Permit of a holder that
experiences financial difficulty. The
Exchange also is clarifying that it has
the authority under proposed Rule 17.1
to suspend or revoke a CBOE Stock
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20994
Federal Register / Vol. 73, No. 75 / Thursday, April 17, 2008 / Notices
Exchange Permit if the holder has been
disciplined by the Exchange.
Further, the Exchange is proposing to
amend Rule 3.2 to clarify that
individuals holding CBOE Stock
Exchange Permits are required to have
authorized trading functions in
accordance with Rule 50.3. In addition,
the Exchange is proposing to amend
Rule 3.19 to clarify that the membership
status of a CBOE Stock Exchange Permit
holder will automatically terminate at
such time that person, among other
things, does not hold a CBOE Stock
Exchange Permit. Rule 3.19 also is being
amended to clarify that the Exchange
would have the authority to allow such
a person to retain that membership
status under certain circumstances to
enable that person to obtain, among
other things, another CBOE Stock
Exchange Permit (subject to the
requirements in Rule 3.26).
2. Statutory Basis
For the reasons described above, the
Exchange believes that the proposed
rule change is consistent with Section
6(b) of the Exchange Act, in general, and
furthers the particular objectives of
Section 6(b)(5) of the Exchange Act.21 In
particular, the proposed rule change 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.22
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
No written comments were solicited
or received with respect to the proposed
rule change.
sroberts on PROD1PC64 with NOTICES
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
21 15
U.S.C. 78f(b) and (b)(5).
15 U.S.C. 78f(b)(5).
22 See
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17:08 Apr 16, 2008
Jkt 214001
(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
Number SR–CBOE–2008–40 and should
be submitted on or before May 8, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Nancy M. Morris,
Secretary.
[FR Doc. E8–8278 Filed 4–16–08; 8:45 am]
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:
BILLING CODE 8010–01–P
Electronic Comments
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change as Modified by Amendment
No. 1 Thereto Relating to Fee Changes
• 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
Number SR–CBOE–2008–40 on the
subject line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57643; File No. SR–ISE–
2008–31]
April 10, 2008.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
• Send paper comments in triplicate
notice is hereby given that on April 7,
to Nancy M. Morris, Secretary,
2008, the International Securities
Securities and Exchange Commission,
Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’)
100 F Street, NE., Washington, DC
filed with the Securities and Exchange
20549–1090.
Commission (‘‘Commission’’) the
proposed rule change as described in
All submissions should refer to File
Items I, II, and III below, which Items
Number SR–CBOE–2008–40. This file
have been prepared by the Exchange.
number should be included on the
subject line if e-mail is used. To help the The Exchange designated this proposal
as one establishing or changing a due,
Commission process and review your
fee, or other charge imposed by ISE
comments more efficiently, please use
only one method. The Commission will under Section 19(b)(3)(A)(ii) of the Act 3
post all comments on the Commission’s and Rule 19b–4(f)(2) thereunder,4 which
renders the proposal effective upon
Internet Web site (https://www.sec.gov/
filing with the Commission. On April 9,
rules/sro.shtml). Copies of the
2008, ISE filed Amendment No. 1 to the
submission, all subsequent
proposed rule change.5 The Commission
amendments, all written statements
is publishing this notice to solicit
with respect to the proposed rule
comments on the proposed rule change,
change that are filed with the
as amended, from interested persons.
Commission, and all written
communications relating to the
I. Self-Regulatory Organization’s
proposed rule change between the
Statement of the Terms of Substance of
Commission and any person, other than
the Proposed Rule Change
those that may be withheld from the
ISE proposes to amend its Schedule of
public in accordance with the
Fees to establish fees for transactions in
provisions of 5 U.S.C. 552, will be
options on 5 Premium Products.6 The
available for inspection and copying in
text of the proposed rule change is
the Commission’s Public Reference
available at the Exchange, on the
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
23 17 CFR 200.30–3(a)(12).
between the hours of 10 a.m. and 3 p.m.
1 15 U.S.C. 78s(b)(1).
Copies of such filing also will be
2 17 CFR 240.19b–4.
available for inspection and copying at
3 15 U.S.C. 78s(b)(3)(A)(ii).
the principal office of the CBOE. All
4 17 CFR 240.19b–4(f)(2).
comments received will be posted
5 In Amendment No. 1, ISE corrected the ticker
without change; the Commission does
symbol for the PowerShares DB Gold Fund from
DBL to DGL in the purpose section of the Form
not edit personal identifying
19b–4 and in Exhibit 1. ISE also made
information from submissions. You
corresponding changes to the Schedule of Fees in
should submit only information that
Exhibit 5.
you wish to make available publicly. All
6 Premium Products is defined in the Schedule of
Fees as the products enumerated therein.
submissions should refer to File
Paper Comments
PO 00000
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]]>Agencies
[Federal Register Volume 73, Number 75 (Thursday, April 17, 2008)]
[Notices]
[Pages 20989-20994]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-8278]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57650; File No. SR-CBOE-2008-40]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Provide for
Issuance of Interim Trading Permits
April 11, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that on April 9, 2008, 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 CBOE. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CBOE is filing this proposed rule change to provide for the
issuance of up to 50 Interim Trading Permits.\3\ The text of the
proposed rule change is available on CBOE's Web site (https://
www.cboe.org/Legal), at CBOE's Office of the Secretary, and at the
Commission's Public Reference Room.
---------------------------------------------------------------------------
\3\ Under Sections 2.1(a) and 12.1 of its Constitution, CBOE
must obtain, but has not yet obtained, membership approval for the
issuance of the Interim Trading Permits and the amendments to its
Constitution contemplated in this proposed rule change. Once it has
obtained that membership approval, CBOE plans to file a technical
amendment to this proposed rule change to reflect that approval.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, CBOE included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed
[[Page 20990]]
rule change. The text of these statements may be examined at the places
specified in Item IV below. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is filing this proposed rule change to provide for the
issuance of up to 50 Interim Trading Permits. These permits will grant
the same trading privileges on the Exchange as transferable Exchange
memberships. The Exchange is seeking the authority to issue these
permits to address the demand for trading access to the Exchange to the
extent that a shortage exists from time to time in the number of
transferable Exchange memberships available for lease. Issuances of
Interim Trading Permits under Proposed Rule 3.27(b).
Under proposed Rule 3.27(b), the Exchange may issue one or more
Interim Trading Permits, subject to the limit on the number of such
permits, to address shortages in the number of transferable memberships
available for lease. Consistent with this purpose, such permits may be
issued only if the Exchange determines in its sole discretion that
there are insufficient transferable Exchange memberships available for
lease at that time at a rate reasonably related to the indicative lease
rate to meet existing demand for such leases,\4\ and that it would be
in the interest of fair and orderly markets to provide additional
trading access under the circumstances (collectively, the ``issuance
findings'').\5\
---------------------------------------------------------------------------
\4\ The ``indicative lease rate'' will be the highest ``clearing
firm floating monthly rate'' of the Clearing Members that assist in
facilitating at least 10% of the transferable membership leases. The
``clearing firm floating monthly rate'' will be the floating rate
that a Clearing Member designates, in connection with transferable
membership leases that the Clearing Member assisted in facilitating,
for leases that utilize that monthly rate. This is based on the
method the Exchange currently is using to determine the access fee
for persons who are Temporary Members under Interpretation and
Policy .02 of Rule 3.19. See, e.g., Securities Exchange Act Release
No. 57411 (March 3, 2008), 73 FR 12478 (March 7, 2008) (notice of
filing and immediate effectiveness of File No. SR-CBOE-2008-25).
\5\ The reference to this last finding does not imply that the
Exchange's markets might not be fair and orderly if there were
insufficient permits to satisfy completely the additional demand for
trading access. Instead, this finding ensures that additional
permits are not issued--regardless of the extent of such demand--if
the issuance of such permits would be contrary to the interests of a
fair and orderly market.
---------------------------------------------------------------------------
In the event that circumstances justify the issuance findings and
the Exchange consequently determines to issue Interim Trading Permits,
the Exchange will announce the number of Interim Trading Permits that
the Exchange determines to make available (limited by the number that
are available for issuance), that the Exchange is taking applications
for such permits, the process the Exchange will follow in issuing such
permits (described in the bullets below), and the beginning and ending
dates during which period of time individuals and organizations must
submit applications for such permits. An individual or organization
must be approved and satisfy all requirements for membership in the
Exchange to be eligible to apply for an Interim Trading Permit to be
issued under proposed Rule 3.27(b). In addition, an individual will be
eligible to receive no more than one Interim Trading Permit in
connection with a particular issuance of Interim Trading Permits
pursuant to proposed Rule 3.27(b), with a maximum of eight such permits
for a member organization and individuals and member organizations
affiliated with the member organization in connection with that
issuance.
Each issuance of Interim Trading Permits pursuant to proposed Rule
3.27(b) will occur in accordance with one of the following objective
processes:
Random Lottery Process. After the deadline for
applications has passed, the Exchange, through a random lottery
process, will issue a number of Interim Trading Permits to applicants
equal to the number of Interim Trading Permits that the Exchange
announced it would make available.
Order in Time Process. After the deadline for applications
has passed, the Exchange will issue an Interim Trading Permit to each
applicant who applied for such a permit in the order in time that such
applicant applied, until the number of Interim Trading Permits that the
Exchange announced it would make available have been issued.
Other Process. The Exchange will have the authority to
modify the processes described above or to establish any other process
to issue Interim Trading Permits pursuant to a rule filing submitted to
the Commission under Section 19(b) of the Exchange Act.\6\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------
The Exchange believes that these processes will provide for the
issuance of Interim Trading Permits in an objective manner and
consequently will provide for fair access to the Exchange. At the same
time, the Exchange will have the flexibility to determine which process
it will follow in connection with a particular issuance of permits. The
Exchange believes that this flexibility is needed to allow it to
determine the most efficient way to issue Interim Trading Permits in
any given situation.
Overall, the Exchange believes that the ability to issue Interim
Trading Permits provides the Exchange with the ability to address, from
time to time, situations in which the demand for full trading access to
the Exchange exceeds the supply of transferable memberships available
for lease. In light of that justification, proposed CBOE Rule 3.27(b)
only allows Interim Trading Permits to be issued in circumstances when
the Exchange is able to make the issuance findings. Increasing the
number of market participants in that situation should promote market
liquidity and help promote the fair and orderly character of CBOE's
markets.
Requirements for Maintaining Interim Trading Permits
Recipients of Interim Trading Permits and all of their associated
persons must remain in compliance with paragraph (f) of proposed CBOE
Rule 3.27. In particular, subparagraph (f)(ii) of proposed CBOE Rule
3.27 provides that they must remain in good standing and must pay all
applicable fees, dues, assessments and other like charges assessed
against CBOE members. Further, subparagraph (f)(i) of proposed CBOE
Rule 3.27 provides that holders of Interim Trading Permits and all of
their associated persons are 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.\7\
---------------------------------------------------------------------------
\7\ In this regard, for instance, Interim Trading Permits may be
suspended or revoked as a result of a disciplinary action under the
amendments proposed for Rule 17.1.
---------------------------------------------------------------------------
In addition, holders of Interim Trading Permits must pay to the
Exchange a monthly access fee. This monthly access fee will be
established and adjusted through proposed rule change(s) that will be
filed with the Commission under Section 19(b)(3)(A) of the Act.\8\ The
monthly access fee will be due and payable in accordance with the
provisions of the Exchange Fee Schedule and will be the same for all
Interim Trading Permit holders.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------
[[Page 20991]]
Nature of Rights Under Interim Trading Permits
As provided in subparagraph (e)(i) of proposed CBOE Rule 3.27, the
holder of an Interim Trading Permit will enjoy the same trading
privileges on the Exchange as the holder of a transferable Exchange
membership. Those rights include the right to trade on the CBOE Stock
Exchange (``CBSX'') and, as provided in Rule 3.29, the trading rights
on the Exchange necessary to become a member of OneChicago, LLC. This
subparagraph also provides that an organization that holds an Interim
Trading Permit or that has an Interim Trading Permit registered for it
shall be treated the same as a ``member organization'' for purposes of
the Rules.\9\ As provided in subparagraph (g)(iii) of proposed CBOE
Rule 3.27, an Interim Trading Permit will be non-transferable, except
that in a form and manner prescribed by the Exchange (1) a member
organization may change the designation of the nominee in respect of
each Interim Trading Permit it holds, and (2) an individual Interim
Trading Permit holder at any time after the issuance of that Interim
Trading Permit may transfer that Interim Trading Permit to a member
organization with which such individual is then associated.
---------------------------------------------------------------------------
\9\ The Exchange notes that this provision is limited to the
Rules and is subject to the conditions imposed on Interim Trading
Permit holder status in the Constitution and Rules, including
proposed Section 1.1(b) of the Constitution and proposed Rule
3.27(e)(i).
---------------------------------------------------------------------------
Under proposed Section 2.6 of the Constitution and subparagraph
(g)(i) of proposed CBOE Rule 3.27, Interim Trading Permit holders will
have the same voting and petition rights as regular members, except
that Interim Trading Permit holders will have no right to vote or
petition concerning (1) issues that relate to Exchange ownership
matters, including without limitation those matters related to
demutualization, mergers, consolidations, dissolution, liquidation,
transfer, or conversion of assets of the Exchange, and (2) matters that
relate to Article Fifth(b).\10\ Similarly, under proposed Section
2.1(c) of the Constitution and subparagraph (g)(ii) of proposed CBOE
Rule 3.27, Interim Trading Permit holders will have no interest in the
assets or property of the Exchange, and will have no right to share in
any distribution by the Exchange.\11\
---------------------------------------------------------------------------
\10\ Under proposed Section 1.1(b) of the Constitution and
proposed Rule 3.27(e)(i), Interim Trading Permit holders in good
standing would be treated the same as members, except as provided in
proposed Sections 2.1(c) and 2.6 of the Constitution, and except for
purposes of paragraph (b) of Article Fifth of the Certificate of
Incorporation, Article Tenth of the Certificate of Incorporation,
proposed Section 4.1(a) of the Constitution, proposed Section 6.1(a)
of the Constitution, and as may be provided in the Rules. Proposed
Rule 3.27(e)(i) further provides that Interim Trading Permit holders
would be treated the same as members (except as described in the
preceding sentence) notwithstanding any references in the Rules
suggesting that Interim Trading Permit holders are members under the
Rules.
\11\ The Exchange notes that the provisions described in this
paragraph and the following paragraph addressing the voting and
representation rights of Interim Trading Permit holders are
virtually identical to the provisions addressing the voting and
representation rights provided to CBSX Permit holders that were
approved by the Commission in connection with a previous Exchange
rule filing. See Securities Exchange Act Release No. 55326 (February
21, 2007), 72 FR 8816 (February 27, 2007) (order approving File No.
SR-CBOE-2006-107). The Exchange also notes that proposed CBOE Rule
3.27 is similar to the CBSX Permit holder rule, CBOE Rule 3.26,
which the Commission approved in connection with that filing.
---------------------------------------------------------------------------
To address the fair representation requirements in Section 6(b)(3)
of the Exchange Act,\12\ proposed Section 4.1(a) of the Constitution
provides that an Interim Trading Permit holder, or an officer of an
Interim Trading Permit holder, will be eligible to serve on the
Nominating Committee in one of the six floor member and firm member
positions on the Nominating Committee, notwithstanding the fact that
the holder of an Interim Trading Permit is not a regular member or an
officer of a regular member. In addition, under proposed Section 6.1(a)
of the Constitution, an Interim Trading Permit holder or the executive
officer of an Interim Trading Permit holder will be eligible to serve
in one of the at-large director positions on the Board of Directors of
the Exchange.\13\ To clarify that an Interim Trading Permit holder will
be able to serve only as an at-large director, proposed Rule
3.27(h)(iii) provides that the holding of an Interim Trading Permit
does not satisfy the requirement in Section 6.1(a) of the Constitution
to own and control a membership for purposes of the definitions of
floor director and lessor director in that section. Finally, proposed
Rule 3.27(e)(i) provides that, except as provided in the Constitution,
an Interim Trading Permit holder will be eligible to serve on any
Exchange committee to the same extent that a member can serve on that
committee.
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\12\ 15 U.S.C. 78f(b)(3).
\13\ The Exchange also proposes to amend Section 6.1(a) to
remove references to a transitional period that are no longer needed
because that period has passed.
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Duration of Interim Trading Permits and Transfer of Interim Trading
Permit Holders to Open Leases
As provided in paragraph (c) of proposed CBOE Rule 3.27, an Interim
Trading Permit will remain in effect until the earlier of one of the
following events: (i) A transaction is consummated pursuant to which
either CBOE is converted into a stock corporation or memberships in
CBOE are converted into stock (collectively, a ``Demutualization
Transaction''), (ii) the holder of the Interim Trading Permit notifies
the Exchange in a form and manner prescribed by the Exchange that the
holder is terminating that Interim Trading Permit, (iii) the Interim
Trading Permit is terminated as a result of a regulatory action by the
Exchange,\14\ or (iv) the Exchange terminates all Interim Trading
Permits through a rule filing approved by the Commission pursuant to
Section 19(b) of the Act.\15\ Subparagraph (e)(ii) of proposed Rule
3.27 provides that, in the event of a Demutualization Transaction,
holders of Interim Trading Permits will be guaranteed to receive
trading permits on the same terms as holders of transferable Exchange
memberships who are eligible to receive trading permits in connection
with that transaction. This guarantee ensures that there is no
disruption in trading access in the event of such a Demutualization
Transaction and thereby helps promote the fair and orderly character of
the Exchange's markets and helps ensure that holders of Interim Trading
Permits are treated fairly in such a transaction and are not unfairly
deprived of trading access to the Exchange.
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\14\ For example, an Interim Trading Permit may be revoked as a
result of a disciplinary action under the amendments proposed for
Rule 17.1.
\15\ 15 U.S.C. 78s(b).
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Because Interim Trading Permits can be issued to provide trading
access under specified conditions, those permits should continue to be
available for those purposes if they no longer are being used by their
original recipients. Accordingly, paragraph (c) of proposed Rule 3.27
provides that the Exchange may reissue an Interim Trading Permit that
has been terminated. This paragraph also incentivizes holders to
terminate their permits early in the month so that the Exchange is in a
position to reissue those permits at the end of the month. In
particular, this paragraph requires a holder of an Interim Trading
Permit, if the holder fails to notify the Exchange that the holder is
terminating that Interim Trading Permit by the fifteenth day of the
month, to pay to the Exchange an amount equal to the following month's
monthly access fee for an Interim Trading Permit.
Under paragraph (d) of proposed Rule 3.27, the Exchange will
endeavor to
[[Page 20992]]
facilitate the transfer of holders of Interim Trading Permits to
transferable memberships that are available for lease. In connection
with determining to issue Interim Trading Permits, the Exchange sought
and received oral feedback from the Exchange's Lessors Committee.
Certain participants on that committee expressed the concern that the
issuance of Interim Trading Permits potentially could have a negative
affect on the lease market by reducing the demand for leases. This
transfer provision is designed to address that concern.
In particular, paragraph (d) of proposed Rule 3.27 will be
triggered if the Exchange is notified by one or more lessors that they
have transferable Exchange memberships available for lease (``open
leases'') at a rate reasonably related to the indicative lease rate, as
determined by the Exchange in its sole discretion. It could distort the
lease market for Interim Trading Permits to be outstanding while open
leases are available at such a rate, so it is appropriate for the
Exchange to endeavor to facilitate the transfer of holders of Interim
Trading Permits to those open leases.
Accordingly, paragraph (d) of proposed Rule 3.27 provides that, in
the event the Exchange receives notifications from lessors that they
have open leases, the Exchange will notify each Interim Trading Permit
holder of the number of open leases and the names of the lessors with
those open leases. As part of that notification by the Exchange, the
Exchange will advise each Interim Trading Permit holder that the holder
may contact those lessors if the holder is interested in transferring
to an open lease.\16\ The Exchange notes that a transfer to an open
lease is entirely voluntary for Interim Trading Permit holders.\17\
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\16\ The Exchange also will provide such a notification to each
person who is a Temporary Member under Interpretation and Policy .02
of Rule 3.19.
\17\ The Exchange also notes that a transfer to an open lease is
entirely voluntary for Temporary Members.
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If, after a reasonable period of time following this process, a
lessor notifies the Exchange that the lessor continues to have an open
lease, the Exchange shall compensate that lessor through a monthly
payment equal to the indicative lease rate, provided that lessor is
offering for lease the transferable membership subject to the open
lease at a rate reasonably related to the indicative lease rate, as
determined by the Exchange in its sole discretion.\18\ If the
indicative lease rate changes, the Exchange may modify that monthly
payment from time to time so that the payment is equal to that rate.
The Exchange has included this compensation provision to address the
potential impact that Interim Trading Permits may have on the lease
market. As mentioned above, certain participants on the Lessors
Committee vocalized concern that Interim Trading Permits potentially
could negatively affect the lease market by reducing demand for leases.
The Exchange believes that this provision is designed to address that
concern.
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\18\ The ``indicative lease rate'' will be determined in
accordance with proposed Rule 3.27(b). See supra note 4.
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In the event the Exchange compensates a lessor in this situation,
the Exchange will not enter into, nor be deemed to have entered into, a
lease or other agreement with that lessor. Accordingly, the Exchange
will have no rights with respect to that lessor's membership, including
without limitation the right to trade on the Exchange or the right to
vote. The lessor may at any time thereafter lease that membership to
any qualified individual or organization and will be required to notify
the Exchange in the event of such a lease. The Exchange will cease
compensating the lessor if it receives such a notification or otherwise
learns the lessor has leased that membership, and may recoup from the
lessor any compensation paid pursuant to proposed Rule 3.27(d) to the
lessor for any period of time during which the lessor has leased that
membership. The Exchange has added this provision to clarify that it
will have no rights with respect to that membership, and that a lessor
may enter into a lease agreement at any time.
The Exchange also may cease compensating that lessor if the
Exchange learns an offer to lease that membership at a rate reasonably
related to the indicative lease rate, as determined by the Exchange in
its sole discretion, has been declined by that lessor. This provision
has been added to provide that lessor with an incentive to lease that
membership if the opportunity arises. Consistent with the purpose of
this transfer provision to assist in filling open leases, the Exchange
does not want to be in a position of perpetually compensating certain
lessors in the event they have opportunities to lease their
memberships.
Finally, in the event that the number of lessors receiving
compensation pursuant to this provision becomes greater than the number
of outstanding Interim Trading Permits, the Exchange will compensate
each such lessor, on a monthly basis, in an amount equal to the current
indicative lease rate, as determined by the Exchange in its sole
discretion, times the number of holders of such permits divided by the
number of such lessors.\19\ The Exchange believes this provision is
necessary to address the scenario in which the number of open leases
exceeds the number of Interim Trading Permits. Under this scenario, the
number of open leases over-and-above the number of outstanding permits
would indicate a lack of demand for trading access to the Exchange
beyond what is being satisfied by Interim Trading Permits. Any
compensation the Exchange may pay pursuant to proposed Rule 3.27(d) is
not intended to be a substitute for that lack of demand for trading
access, and therefore the Exchange has determined in this scenario to
compensate lessors on a pro-rata basis from fees paid by Interim
Trading Permit holders.
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\19\ As a corollary to this provision, the Exchange will cease
compensating such lessors during any period when there are no
Interim Trading Permits currently outstanding.
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Conforming Changes
The Exchange has made certain conforming changes in its Rules to
ensure that individuals and organizations that receive Interim Trading
Permits under proposed Rule 3.27 can conduct their activities in a
manner similar to holders of Exchange memberships. In particular,
subparagraph (h)(ii) of proposed Rule 3.27 provides that an individual
Interim Trading Permit holder will have the same ability to register
that Interim Trading Permit for a member organization as the holder of
an Exchange membership has to register that membership for a member
organization under Rule 3.8(c). In addition, that same subparagraph
provides that all Rules that apply to an individual member registering
a membership for a member organization, or that apply to a member
organization that has a membership registered for it, shall also be
deemed to apply to an individual Interim Trading Permit holder who has
registered that Interim Trading Permit for a member organization, and
to a member organization that has an Interim Trading Permit registered
for it. Rule 3.8 also has been amended to allow member organizations
holding Interim Trading Permits to designate individual nominees and
inactive nominees with respect to those permits.
[[Page 20993]]
Similarly, subparagraph (h)(i)(A) of proposed Rule 3.27 provides
that an Interim Trading Permit will be counted as one membership for
purposes of the Participation Entitlement provisions in Rule
6.45A(a)(i)(C)(1) and Rule 6.45B(a)(ii)(C)(1). In addition,
subparagraph (h)(i)(B) of proposed Rule 3.27 provides that an Interim
Trading Permit will be counted as one membership for purposes of the
appointment costs provisions in Rule 8.3(c)(v), Rule 8.85(e) and Rule
8.92(d). Notwithstanding the similar treatment of an Interim Trading
Permit and a membership for these purposes, subparagraph (h)(i)(A)-(B)
also provide that an Interim Trading Permit will not satisfy the
requirements in Rule 8.85(e) and Rule 8.92(d) that a DPM or an e-DPM
own at least one membership.\20\ This is consistent with the original
purpose of the DPM and e-DPM membership ownership requirement, which
was to require that DPMs and e-DPMs own, instead of lease, at least one
Exchange membership in order to ensure that they have a long-term
commitment to the Exchange. As discussed above, an Interim Trading
Permit holder will have no interest in the assets or property of the
Exchange, and will have no right to share in any distribution by the
Exchange.
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\20\ Proposed Interpretation and Policy .04 of Rule 8.85 and
proposed Interpretation and Policy .01 of Rule 8.92 specifically
provide that an Interim Trading Permit does not satisfy the
membership ownership requirements in those Rules.
---------------------------------------------------------------------------
In order further to assure that holders of Interim Trading Permits
can conduct their trading activities in a manner similar to the holders
of Exchange memberships, subparagraph (h)(i)(C) of proposed Rule 3.27
provides that an Interim Trading Permit will be treated as a separate
membership for purposes of the pilot programs referenced in Rule
8.3(c)(vii)(1), Rule 8.3(c)(vii)(2), Rule 8.85(a)(v), Rule 8.93(vii),
and subparagraph (b)(viii) of the Guidelines for Exemptive Relief Under
Rule 8.91(e) for Members Affiliated with DPMs. These pilot programs
allow one Market-Maker affiliated with another Market-Maker, an Off-
Floor DPM or an e-DPM to trade in open-outcry in any specific option
class allocated to that Market-Maker, Off-Floor DPM or e-DPM, provided
such Market-Maker trades on a separate membership. Further,
subparagraph (h)(i)(D) of proposed Rule 3.27 provides that an
individual Interim Trading Permit holder may satisfy the qualification
requirements to be a DPM Designee or SBT DPM Designee as set forth in
Rule 8.81(b)(ii) and Rule 44.11(b)(2) by registering the Interim
Trading Permit for a DPM or SBT DPM or an affiliate of the DPM or SBT
DPM. This subparagraph also provides that a DPM may satisfy the
requirement in Rule 8.81(d) by having DPM Designees who have registered
their Interim Trading Permits for the DPM.
Other conforming changes have been made to the Rules such that
certain requirements related to the holders of memberships will apply
to the holders of Interim Trading Permits. In particular, under
proposed Rule 3.2(c), individual Interim Trading Permit holders will be
required to have authorized trading functions. In addition, proposed
Rule 3.3(c) provides that the holding of an Interim Trading Permit
satisfies the requirement in that Rule that Clearing Members and order
service firms possess at least one membership. Further, under proposed
Rule 3.19, the membership status of an Interim Trading Permit holder
will automatically terminate at such time that person, among other
things, does not hold an Interim Trading Permit. Under this rule, the
Exchange also will have the authority to permit such a person to retain
that membership status under certain circumstances to enable that
person to obtain, among other things, another Interim Trading Permit
(subject to the requirements in proposed Rule 3.27). Also, individual
Interim Trading Permit holders under proposed Rule 3.24 will be
eligible for the member death benefit.
Finally, the Rules have been amended to preserve the Exchange's
regulatory authority under the Exchange Act and the Constitution and
Rules of the Exchange. In particular, the Exchange will have the
authority under proposed Rule 2.23 to revoke an Interim Trading Permit
if the holder fails to pay any dues, fees, assessments, charges, fines,
or other amounts due to the Exchange within six months after such
payment is due. In addition, the Exchange will have the authority under
proposed Rules 16.3(c) and 16.4 to suspend or revoke the Interim
Trading Permit of a holder that experiences financial difficulty. The
Exchange also will have the authority under proposed Rule 17.1 to
suspend or revoke an Interim Trading Permit if the holder has been
disciplined by the Exchange.
Clarifying Changes Related to CBOE Stock Exchange Permits
In amending the Constitution and Rules to provide for the issuance
of Interim Trading Permits, the Exchange determined to make certain
changes to clarify how CBOE Stock Exchange Permits currently are
treated under the Certificate of Incorporation, Constitution, and
Rules. The Exchange believes that these changes are non-substantive in
nature because they make explicit the way CBOE Stock Exchange Permits
and the holders of such permits currently are treated and do not modify
the rights of the holders of such permits.
In particular, the Exchange has amended Section 1.1 of the
Constitution to specifically provide that, rather than being defined as
members, CBOE Stock Exchange Permit holders will be treated the same as
members, except as provided in Sections 2.1(d) and 2.6 of the
Constitution, and except for purposes of paragraph (b) of Article Fifth
of the Certificate of Incorporation, Article Tenth of the Certificate
of Incorporation, Section 4.1(a) of the Constitution, Section 6.1(a) of
the Constitution, and as may be provided in the Rules. The Exchange
also is proposing a conforming amendment in Rule 3.26(c) to provide
that CBOE Stock Exchange Permit holders are treated the same as members
(except as described above), rather than being ``deemed'' members, for
purposes of the Certificate of Incorporation, Constitution, and Rules.
Similarly, the Exchange is proposing to amend this paragraph to provide
that CBOE Stock Exchange Permit holders shall be treated the same as
members (except as described above) notwithstanding any references in
the Rules suggesting that CBOE Stock Exchange Permit holders are
members under the Rules. In addition, the Exchange is proposing to
amend this paragraph to clarify that an organization that holds a CBSX
Permit or that has a CBSX Permit registered for it shall be treated the
same as a ``member organization'' for purposes of the Rules. Further,
the Exchange is proposing to amend Rule 3.26(e)(i) to clarify that the
holding of a CBSX Permit does not satisfy the requirement in Section
6.1(a) of the Constitution to own and control a membership for purposes
of the definitions of floor director and lessor director in that
section.
The Exchange also has proposed to amend Rule 2.23 to clarify that
the Exchange has the authority to revoke a CBOE Stock Exchange Permit
if the holder fails to pay any dues, fees, assessments, charges, fines,
or other amounts due to the Exchange within six months after such
payment is due. Similarly, the Exchange has proposed to amend Rules
16.3(c) and 16.4 to clarify that the Exchange has the authority to
suspend or revoke the CBOE Stock Exchange Permit of a holder that
experiences financial difficulty. The Exchange also is clarifying that
it has the authority under proposed Rule 17.1 to suspend or revoke a
CBOE Stock
[[Page 20994]]
Exchange Permit if the holder has been disciplined by the Exchange.
Further, the Exchange is proposing to amend Rule 3.2 to clarify
that individuals holding CBOE Stock Exchange Permits are required to
have authorized trading functions in accordance with Rule 50.3. In
addition, the Exchange is proposing to amend Rule 3.19 to clarify that
the membership status of a CBOE Stock Exchange Permit holder will
automatically terminate at such time that person, among other things,
does not hold a CBOE Stock Exchange Permit. Rule 3.19 also is being
amended to clarify that the Exchange would have the authority to allow
such a person to retain that membership status under certain
circumstances to enable that person to obtain, among other things,
another CBOE Stock Exchange Permit (subject to the requirements in Rule
3.26).
2. Statutory Basis
For the reasons described above, the Exchange believes that the
proposed rule change is consistent with Section 6(b) of the Exchange
Act, in general, and furthers the particular objectives of Section
6(b)(5) of the Exchange Act.\21\ In particular, the proposed rule
change 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.\22\
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\21\ 15 U.S.C. 78f(b) and (b)(5).
\22\ See 15 U.S.C. 78f(b)(5).
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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
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the 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 rule-comments@sec.gov. Please include
File Number SR-CBOE-2008-40 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-2008-40. 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 (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 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-2008-40 and should be
submitted on or before May 8, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E8-8278 Filed 4-16-08; 8:45 am]
BILLING CODE 8010-01-P
