[Federal Register Volume 60, Number 39 (Tuesday, February 28, 1995)]
[Notices]
[Pages 10884-10886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4858]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35403; File No. SR-CBOE-94-39]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval of
Amendment No. 1 to Proposed Rule Change by the Chicago Board Options
Exchange, Inc., Relating to Obligations to Furnish Information
February 22, 1995.
On November 7, 1994, the Chicago Board Options Exchange, Inc.
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission''), pursuant to section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'').\1\ and Rule 19b-4
thereunder,\2\ a proposal to amend CBOE Rule 15.9, ``Regulatory
Cooperation,''\3\ to delineate the obligation of CBOE members and
persons associated with CBOE members to furnish information in
connection with inquiries arising from regulatory agreements that the
Exchange has entered into with other regulatory and market institutions
even in cases where the Exchange has not otherwise initiated an
investigation.
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
\3\CBOE Rule 15.9(a) allows the Exchange to ``enter into
agreements with domestic and foreign self-regulatory organizations,
associations and contract markets and the regulators of such markets
which provide for the exchange of information and other forms of
mutual assistance for market surveillance, investigative,
enforcement and other regulatory purposes.''
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In addition, the CBOE proposes to amend CBOE Rule 17.2, ``Complaint
and Investigation,'' to expand the set of circumstances under which
members or persons associated with members are obligated, upon request
by the Exchange, to appear and testify, respond in writing to
interrogatories and furnish documentary materials and other
information.
The proposal was published for comment in the Federal Register on
December 8, 1994.\4\ No comments were received on the proposed rule
change.\5\
\4\See Securities Exchange Act Release No. 35035 (December 1,
1994), 59 FR 63397 (December 8, 1994).
\5\On February 15, 1995, the CBOE amended its proposal to
clarify that when the Exchange requests information from a member
pursuant to CBOE Rule 15.9(b), the member has the same rights and
procedural protections in responding to the request as the member
would have in the case of any other request for information
initiated by the CBOE pursuant to CBOE Rule 17.2(b). In addition,
the CBOE notes that the proposal authorizes the CBOE to request
information and compel testimony from its members or associated
persons whenever the CBOE deems such a request to be appropriate and
consistent with its agreements to cooperate with other regulatory
organizations. The CBOE notes, further, that when the CBOE requests
any such information or testimony on behalf of another regulatory
body, the CBOE continues to be the requesting regulatory body in
relation to the CBOE member and all such requests are subject to the
CBOE's rules. See Letter from James R. McDaniel, Schiff Hardin &
Waite, to Michael Walinskas, Branch Chief, Options Regulation,
Division of Market Regulation, Commission, dated February 15, 1995
(``Amendment No. 1''). [[Page 10885]]
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The CBOE proposes to amend CBOE Rule 15.9 to provide that as long
as a CBOE member or person associated with a CBOE member is subject to
the CBOE's jurisdiction, the CBOE member or person associated with a
CBOE member is obligated to furnish testimony, documentary evidence or
other information to the full extent provided in CBOE Rule 17.2(b),
``Conduct of Investigation,'' whether or not the Exchange has initiated
the investigation, if the information is requested by the Exchange in
connection with any inquiry resulting from an agreement entered into by
the Exchange with a domestic or foreign self-regulatory organization or
regulator pursuant to CBOE Rule 15.9. A CBOE member or person
associated with a CBOE member from whom such information is requested
possesses the same procedural protections which would apply to a
request made pursuant to an investigation initiated by the CBOE.\6\
\6\Id.
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According to the Exchange, the amendments to CBOE Rule 15.9 are
designed to clarify the CBOE's existing rules, which do not clearly
delineate the obligation of CBOE members or persons associated with
CBOE members to furnish information when the provision of information
is required in connection with regulatory agreements where the CBOE has
not itself initiated an investigation.
In addition, the CBOE proposes to amend CBOE Rule 17.2 to state
clearly that each CBOE member and person associated with a CBOE member
is obligated, upon the Exchange's request, to testify, respond in
writing to interrogatories, and furnish documentary materials and other
information requested by the Exchange in connection with an
investigation initiated pursuant to CBOE Rule 17.2(a), a hearing or
appeal conducted pursuant to CBOE Chapter 17 or an inquiry resulting
from an agreement entered into by the Exchange pursuant to CBOE 15.9.
The CBOE also proposes to amend CBOE Rule 17.2, Interpretation and
Policy .01 to provide that the failure to furnish testimony,
documentary evidence, or other information requested by the CBOE in the
course of an Exchange inquiry within the time period specified by the
Exchange shall be deemed to be a violation of CBOE Rule 17.2.
The Exchange states that the amendments to CBOE Rule 17.2 delineate
clearly the obligation of CBOE members and persons associated with CBOE
members to furnish information in connection with an investigation
initiated by the CBOE itself, including information requested in
connection with a hearing or appeal or the Exchange's preparation for a
hearing or appeal. The amendments to CBOE Rule 17.2 are designed to set
forth the CBOE's longstanding interpretation of existing CBOE rules.
The Commission believes 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 and, in
particular, the requirements of Section 6(b)(5)\7\ in that it is
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest. Specifically, the
Commission believes that the proposed amendment to CBOE Rule 15.9 will
strengthen CBOE Rule 15.9 and enhance the CBOE's disciplinary system by
indicating clearly that the Exchange may require CBOE members and
persons associated with CBOE members to furnish testimony, documentary
evidence or other information pursuant to regulatory agreements entered
into pursuant to CBOE Rule 15.9(a). At the same time, the Commission
believes that the proposal maintains procedural safeguards for CBOE
members by providing that members from whom such information is
requested possess the same procedural protections that would apply to a
request made pursuant to an investigation initiated by the CBOE.\8\
\7\15 U.S.C. 78f(b)(5) (1988).
\8\See Amendment No. 1, supra note 5.
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By clarifying the obligation of CBOE members to furnish testimony
and other information in connection with such investigations, the
Commission believes that the proposal will facilitate investigations
commenced pursuant to CBOE Rule 15.9, thereby furthering the protection
of investors and the public interest by helping to ensure the prompt
investigation of possible trading violations and other regulatory
improprieties. In addition, the Commission believes that the proposal
will help the Exchange to coordinate with domestic and foreign self-
regulatory organizations in implementing a surveillance system
appropriate to today's increasingly linked and globalized markets.\9\
In addition, the Commission believes that the proposed amendments to
CBOE Rule 17.2(b) will clarify the obligation of members to appear and
testify, respond in writing to interrogatories and furnish information
requested by the Exchange in connection with an investigation initiated
pursuant to CBOE Rule 17.2(a), a hearing or appeal conducted pursuant
to CBOE Chapter 17, or an inquiry resulting from an agreement entered
into by the Exchange pursuant to CBOE Rule 15.9. The Commission
believes that the amendments to CBOE Rule 17.2(b) and Interpretation
and Policy .01 should protect investors and the public interest by
facilitating the prompt resolution of disciplinary matters.
\9\See Securities Exchange Act Release No. 28498 (October 1,
1990), 55 FR 41286 (October 10, 1990) (order approving File No. SR-
CBOE-90-23).
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Specifically, by clearly stating members' obligation to testify and
to provide information requested by the Exchange, and by making
noncompliance with such requests a violation of CBOE Rule 17.2, the
Commission believes that the proposal will encourage CBOE members to
comply fully with CBOE requests for information and will enhance the
Exchange's ability to conduct investigations in a timely manner,
without burdening the members being investigated. The Commission
believes that the CBOE must have the ability to obtain such information
so that the Exchange will have access to all relevant facts necessary
for the Exchange to act on a fully informed basis when making decisions
concerning the disciplining of members.
At the same time, the Commission believes that the proposal is
consistent with the CBOE's maintenance of a fair disciplinary process
for its members. In this regard, the Commission notes that all existing
due process safeguards relating to CBOE disciplinary proceedings remain
in place.
The Commission finds good cause for approving Amendment No. 1 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register because
Amendment No. 1 clarifies the proposal and helps to safeguard the
procedural [[Page 10886]] rights of members from whom the Exchange
requests information pursuant to CBOE Rule 15.9(b). Accordingly, the
Commission believes it is consistent with Sections 6(b)(5) and 19(b)(2)
of the Act to approve Amendment No. 1 to the proposed rule change on an
accelerated basis.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-CBOE-94-39) is approved.
\10\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
\11\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-4858 Filed 2-27-95; 8:45 am]
BILLING CODE 8010-01-M