[Federal Register Volume 78, Number 238 (Wednesday, December 11, 2013)]
[Notices]
[Pages 75435-75437]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29494]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70996; File No. SR-CBOE-2013-114]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Order Granting Accelerated Approval
of Proposed Rule Change To Amend CBOE Rule 18.2 (Procedures in Trading
Permit Holder Controversies)
December 5, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 22, 2013, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``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 and to
approve the proposed rule change on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend CBOE Rule 18.2 to provide that
arbitrators in controversies between parties who are Trading Permit
Holders (``TPHs'') or associated persons of TPHs (such controversies
herein referred to as ``TPH controversies'') may be selected from
CBOE's Arbitration Committee (``Committee'') or, if necessary, from
rosters provided by the Financial Industry Regulatory Authority Inc.
(``FINRA'') of qualified non-public arbitrators and non-public
chairperson-qualified arbitrators, as defined by FINRA.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx,
at the Exchange's Office of the Secretary, and at the Commission's
Public Reference Room.
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 V below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange seeks to amend Rule 18.2 (Procedures in Trading Permit
Holder Controversies) to provide more flexibility with regards to the
selection of the arbitration panel for TPH controversies. By way of
background, the Exchange offers an arbitration facility for TPHs and
associated persons of TPHs to arbitrate disputes, claims or
controversies arising out of Exchange business.\3\
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\3\ For the purposes of CBOE's arbitration rules, the term
``Exchange business'' does not include a dispute, claim or
controversy alleging employment discrimination, including sexual
harassment. The Exchange may, however, make its arbitration
facilities available for the resolution of employment discrimination
claims if the parties mutually agree to arbitrate the claim after it
has arisen. See CBOE Rule 18.1 Interpretation and Policy .03.
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Under Exchange rules, any arbitration between parties who are TPHs
or persons associated with a TPH shall be resolved by an arbitration
panel that consists of three members of the Committee, which is
maintained primarily as a means for managing a pool of qualified
industry arbitrators that generally is composed of a cross-section of
Exchange TPHs and/or former TPHs or associated persons of TPHs or other
individuals who are knowledgeable about the securities industry.
For TPH controversies, CBOE Rule 18.2(a) currently provides that
the arbitration panel appointed to hear such controversies be comprised
of no fewer than three arbitrators from the Committee.\4\ In this
proposal, the Exchange seeks to amend Rule 18.2 to provide greater
flexibility with regard to the selection of the arbitration panel for
TPH controversies. Specifically, CBOE proposes to amend the rule to
provide that arbitrators may be selected from the Committee or, if
necessary, from rosters provided by FINRA of qualified non-public
arbitrators and non-public chairperson-qualified arbitrators (as
defined by FINRA's rules governing arbitration of industry disputes)
that have indicated that they would be willing to serve as an
arbitrator for another self-regulatory organization.\5\
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\4\ In practice, however, arbitration panels for TPH
controversies typically consist of three Committee members.
\5\ FINRA Rule 13100(p) defines the term ``non-public
arbitrator'' as a person who is otherwise qualified to serve as an
arbitrator and: (1) Is or, within the past five years, was: (A)
Associated with, including registered through, a broker or a dealer
(including a government securities broker or dealer or a municipal
securities dealer); (B) registered under the Commodity Exchange Act;
(C) a member of a commodities exchange or a registered futures
association; or (D) associated with a person or firm registered
under the Commodity Exchange Act; (2) is retired from, or spent a
substantial part of a career engaging in, any of the business
activities listed in paragraph (p)(1); (3) is an attorney,
accountant, or other professional who has devoted 20 percent or more
of his or her professional work, in the last two years, to clients
who are engaged in any of the business activities listed in
paragraph (p)(1); or (4) is an employee of a bank or other financial
institution and effects transactions in securities, including
government or municipal securities, and commodities futures or
options or supervises or monitors the compliance with the securities
and commodities laws of employees who engage in such activities. For
purposes of FINRA Rule 13100(p), the term ``professional work'' does
not include mediation services performed by mediators who are also
arbitrators, provided that the mediator acts in the capacity of a
mediator and does not represent a party in the mediation. The
Exchange's guidelines classifying whether an arbitrator is deemed to
be from the securities industry is substantially similar to FINRA's
definition of ``non-public arbitrator.'' See CBOE Rule 18.10.
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Over the years, fewer TPHs have made themselves available to serve
on the Committee. Consequently, it has become increasingly burdensome
for the Exchange to select a sufficient number of arbitrators solely
from the Committee to sit on any given arbitration panel. In addition,
it has become increasingly difficult not only to find three arbitrators
to sit on an arbitration panel, but also to ensure that at least one of
the arbitrators is qualified to serve as a chairperson on the panel.
Moreover, there are instances in which many Committee members have
interests, relationships, or circumstances that might preclude them
from being able to
[[Page 75436]]
render an objective and impartial determination in a particular
arbitration matter. The Exchange believes that eliminating the
requirement that all arbitrators for TPH controversies be selected from
the Committee would provide the Exchange with additional flexibility
and help ensure that the Exchange would have a sufficient number of
qualified non-public arbitrators readily available at all times.
The proposed rule change would provide the Exchange with the
ability to appoint arbitrators identified in the FINRA-provided rosters
in instances in which the Exchange is unable to select a sufficient
number of arbitrators from its Committee. For example, the Exchange may
be unable to select a sufficient number of arbitrators from the
Committee if all the arbitrators from the Committee who are eligible to
serve as a panel chairperson are unavailable to serve as the panel
chairperson in a particular arbitration matter, due to either
scheduling conflicts or the fact that they have interests,
relationships, or circumstances which preclude them from being able to
render an objective and impartial determination in that matter. In such
instances, it would be necessary for the Exchange to select one
arbitrator from a FINRA-provided roster of non-public, chairperson-
qualified arbitrators, as defined by FINRA \6\ to serve as the panel
chairperson. Under the proposal, the Exchange would only appoint as
many arbitrators from outside the Committee as necessary. For example,
in the scenario described above, if the Exchange is able to appoint to
the panel the other two ``non-chairperson'' arbitrators from the
Committee, it would do so.
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\6\ See FINRA Rule 13400.
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The Exchange believes that FINRA maintains a comprehensive roster
of arbitrators that are in good standing and qualified to sit on an
arbitration panel. The Exchange also believes that the qualification
requirements to become a FINRA arbitrator are similar to the
qualification requirements to become and stay a member of the
Committee. For example, similar to the Exchange's requirements, in
order for an individual to become a FINRA arbitrator, the individual
must have a minimum of five years of business and/or professional
experience and must have attended an introductory arbitrator training
course. Accordingly, the Exchange believes that the arbitrators named
on any FINRA non-public arbitrator roster would be sufficiently
qualified to serve on any CBOE arbitration panel.
The applicable rules of Chapter XVIII of CBOE's Rules would
continue to apply to all arbitrators, regardless of whether they were
selected from the Committee or from a FINRA-provided roster. In
addition, all arbitrators, whether or not selected from the Committee,
would be screened for conflicts, potential conflicts, and the
appearance of conflicts prior, and subsequent, to appointment and would
be required to disclose any information that presents a conflict,
existing or potential, or creates the appearance of a conflict with any
party, fact, or circumstance related to the case in question.
FINRA is aware of the Exchange's proposal and has indicated that it
has no objection. If this filing is approved, the Exchange expects to
enter into a written agreement with FINRA under which FINRA would agree
to provide to the Exchange lists of qualified non-public arbitrators
and non-public chairperson-qualified arbitrators upon the Exchange's
request when the Exchange determines that it does not have sufficient
arbitrators to handle a case. The Exchange further expects FINRA to
agree to provide these lists to CBOE to the extent that FINRA has
sufficient non-public arbitrators in a specified location at the time
of the request.
The proposed rule change will become effective upon approval by the
Commission. CBOE has requested the Commission to find good cause
pursuant to Section 19(b)(2) \7\ of the Act for approving the proposed
rule change prior to the 30th day after its publication in the Federal
Register.
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\7\ 15 U.S.C. 78s(b)(2).
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\8\ Specifically, the Exchange believes the proposed rule change is
consistent with Section 6(b)(5) of the Act \9\ which requires that the
rules of an exchange be 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
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange notes that the purpose of the Exchange
providing an arbitration forum is, among other things, to provide TPHs
and associated persons of TPHs with a simple and inexpensive procedure
for resolution of their controversies with other TPHs or associated
persons of TPHs. The Exchange believes that the proposed rule change is
consistent with the provisions of the Act because it would help ensure
that the Exchange has a sufficient number of qualified arbitrators
readily available to resolve TPH controversies. In addition, the
Exchange believes that providing it with greater flexibility in its
selection of qualified arbitration panels would prevent unnecessary
delays in, and improve the administration of, its arbitration forum for
resolving disputes and enhancing the forum for its users. As such, the
Exchange believes the proposed rule change meets the requirements of
Section 6(b)(5) of the Act.
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. Specifically, the Exchange
believes the proposed rule change will not impose any burden on
competition because the Exchange is merely providing greater
flexibility in its selection of arbitrators for arbitration panels to
facilitate and improve the administration of its arbitration forum and
ensure that the Exchange has a sufficient number of qualified non-
public arbitrators readily available.
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
proposed rule change.
III. Commission's Findings
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\10\ In particular, the Commission finds that the proposed
rule change is consistent with, and would further the purposes of,
[[Page 75437]]
Section 6(b)(5) of the Act \11\ by providing the Exchange with a
mechanism to ensure that it has a sufficient number of qualified non-
public arbitrators readily available to resolve TPH controversies.
Section 6(b)(5) of the Act specifically provides, among other things,
that the rules of a national securities exchange should foster
cooperation and coordination with persons engaged in regulating
securities.\12\ The Commission believes that the proposed rule change
would foster cooperation between CBOE and FINRA to help facilitate and
improve the administration of CBOE's arbitration forum. In addition,
the proposed rule change would provide the Exchange with greater
flexibility in its selection of qualified non-public arbitration
panels, which would prevent unnecessary delays in, and improve the
administration of, its arbitration forum for resolving disputes.
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\10\ In approving this proposal, the Commission has considered
the proposed rule change's impact on efficiency, competition, and
capital formation. See 15 U.S.C. 78c(f).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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The Commission does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed rule change merely helps ensure that CBOE has a sufficient
number of qualified non-public arbitrators readily available for TPH
controversies. Moreover, the proposed rule change would be neutrally
applied to all TPH controversies.
IV. Accelerated Approval
In its filing, CBOE requested that the Commission approve the
proposed rule change on an accelerated basis so that the proposal may
become operative as soon as practicable. The Commission finds good
cause, pursuant to Section 19(b)(2) of the Act,\13\ for approving the
proposed rule change prior to the 30th day after the date of
publication in the Federal Register. In particular, CBOE represented to
the Commission staff that there are pending TPH controversies that
cannot be heard in arbitration because there are not enough eligible
arbitrators on the Committee because many Committee members have
interests, relationships, or circumstances that preclude them from
being able to render an objective and impartial determination in these
matters.\14\ The Exchange has also represented that the delay in
resolving these TPH controversies has created an undue hardship on the
parties involved.\15\ The Commission believes that granting CBOE's
request for accelerated approval would allow the Exchange to more
readily select the arbitration panels for these pending TPH
controversies, thus preventing further delay in hearing the parties'
claims. Accordingly, the Commission finds that good cause exists to
approve the proposed rule change on an accelerated basis.
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\13\ 15 U.S.C. 78s(b)(2).
\14\ See email from Corinne Klott, Attorney, CBOE, to Daniel
Fisher, Branch Chief, Division of Trading and Markets, Commission,
dated December 3, 2013.
\15\ Id.
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V. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CBOE-2013-114 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2013-114. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the 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-CBOE-2013-114 and should be
submitted on or before January 2, 2014.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-CBOE-2013-114) be, and
hereby is, approved on an accelerated basis.
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\16\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29494 Filed 12-10-13; 8:45 am]
BILLING CODE 8011-01-P