[Federal Register Volume 64, Number 222 (Thursday, November 18, 1999)]
[Notices]
[Pages 63065-63097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29777]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42111; File No. SR-CBOE-99-15]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1 and 2 to the Proposed Rule Change by the
Chicago Board Options Exchange, Inc.; Updating the Exchange's
Membership Rules
November 5, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 12, 1999, the Chicago Board Options Exchange, Inc. (``CBOE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The CBOE filed Amendment No. 1 to the proposal on July 15,
1999,\3\ and Amendment No. 2 to the proposal on November 3, 1999.\4\
The Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 makes numerous technical changes to the
proposed rule language and corresponding changes in the Purpose
section of the filing. See letter from Arthur B. Reinstein,
Assistant General Counsel, CBOE, to Kenneth Rosen, Attorney,
Division of Market Regulation (``Division''), SEC, dated July 14,
1999.
\4\ Amendment No. 2 makes minor technical corrections to the
text of the proposed rule and deletes section 8(h) from the
Exchange's Option Trading Lease Pool Procedures. See letter from
Arthur B. Reinstein, Assistant General Counsel, CBOE, to Yvonne
Fraticelli, Special Counsel, Division, SEC, dated November 3, 1999.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to update the Exchange's membership rules. The
text of the proposed rule change is set forth below. Proposed additions
are in italics and proposed deletions are in brackets.
Chicago Board Options Exchange, Incorporated Rules
CHAPTER I--Definitions
RULE 1.1--Definitions
* * * * *
Lessor
(ff) The term ``lessor'' means the owner of a transferable
membership that has been leased to an individual or organization in
accordance with the provisions of Rule 3.17 [3.16(b)], and includes any
successor in interest of such owner. [A lessor shall continue as a
member of the Exchange, subject to all of the provisions of the
Constitution and Rules, except that for the duration of the lease
arrangements with respect to that leased membership, a lessor may not
conduct a public securities business as described by the provisions of
Rules 3.1 and the Rules referenced therein.]
Lessee
(gg) The term ``lessee'' means an individual or organization that
has leased a transferable membership from the owner thereof in
accordance with the provisions of Rule 3.17 [3.16(b)]. For the duration
of the lease agreement, a lessee shall be deemed to be a member,
subject to all of the provisions of the Constitution and Rules that are
applicable to the owner of an Exchange membership, except that the
provisions of the Constitution and Rules [Rule 3.12], which concern the
ownership of membership, are not applicable to a lessee.
[[Page 63066]]
Government Securities Options Permit Holder
(hh) Deleted ________, 199__ (99-____). [The term ``Government
securities options permit holder'' means a qualified individual or
organization with an approved nominee that has been issued a
nonleasable, nontransferable temporary permit for effecting
transactions in Government securities options designated by the Board.
Each permit holder shall be subject to the provisions of the
Constitution and Rules that are applicable to the owner of a regular
Exchange membership, unless exempted from such provisions by the Board;
provided, however, Rule 3.12, which concerns the ownership of
membership, Rule 3.13, which concerns the purchase of membership, and
Section 2.6 of the Constitution, which concerns voting and other rights
and powers, shall not apply to a permit holder in his or its capacity
as such.]
* * * * *
Nominee
(pp) The term ``nominee'' means an individual who is authorized by
a member organization, in accordance with Rule 3.8, to [conduct
business on the floor of the Exchange and to] represent such member
organization in all matters relating to the Exchange. [As long as a
nominee remains effective, the nominee shall be deemed to be a member,
subject to the provisions of the Constitution and Rules of the
Exchange.]
* * * * *
CHAPTER III--Membership
Public Securities Business
RULE 3.1. (a) Every individual member or member organization shall
have as the principal purpose of its membership the conduct of a public
securities business. No individual member or member organization shall
own or have registered for it more memberships than are reasonably
necessary to carry on [his or its] that member's Exchange activities.
(b) A member shall be deemed to have such a purpose if and so long
as
(1) the member has qualified and acts in respect of its business on
the Exchange in one or more of the following capacities: (i) a member
organization approved to transact business with nonaffiliated public
customers in accordance with Rule 9.1 [or]; (ii) a member organization
approved to clear Exchange transactions of other members in accordance
with the Rules of the Clearing Corporation; (iii) a Market-Maker as
defined in Rule 8.1; ([iii]iv) a Floor Broker as defined in Rule 6.70;
([iv]v) a Board Broker as defined in Rule 7.1; (vi) an order service
firm as defined in Rule 6.77; [and]or
(2) [all transactions are in compliance with Section 11(a) of the
Securities Exchange Act of 1934 as amended and the rules and
regulations adopted thereunder; or
(3) the member is a lessor] the member is a lessor; or
(3) the member is an individual with a membership that has been
registered for a member organization; or
(4) the member is a [general partner or executive officer or
nominee of a member organization and his membership is registered for
that] nominee of a member organization.
(c) No member [or member organization] shall utilize any scheme,
device, arrangement, agreement, or understanding designed to circumvent
or avoid, by reciprocal means or in any other manner, the provisions of
this Rule [3.1].
Qualifications and Membership Statuses of Individual Members
RULE 3.2. (a) A person must satisfy the following requirements in
order to be an individual member:
(i) the person must be at least 21 years of age;
(ii) the person must be registered as a broker or dealer pursuant
to Section 15 of the Exchange Act or be associated with a member
organization that is registered as a broker or dealer pursuant to
Section 15 of the Exchange Act, except that an individual member who is
approved to act solely as a lessor is not required to comply with this
requirement; and
(iii) the person must meet the other qualification requirements for
membership under the Constitution and Rules.
(b) The individual membership statuses that are approved by the
Membership Committee (along with the primary Exchange Rule that
provides for such approval if it is not Rule 3.9) include: (i) owner*;
(ii) lessor*; (iii) lessee*; (iv) Chicago Board of Trade exerciser*;
(v) sole proprietor*; (vi) individual with a membership that has been
registered for a member organization*; (vii) nominee of a member
organization*; (viii) Market-Maker (Rule 8.2); (ix) Floor Broker (Rule
6.71); (x) member eligible to trade securities traded pursuant to
Chapter XXX (Rule 30.2); and (xi) Trust Member (Rule 3.25). The
individual permit statuses that are approved by the Membership
Committee are IPC Permit Exerciser* (Rule 3.26) and Options Trading
Permit holder* (Rule 3.27). Those individual membership statuses noted
with an asterisk are also referred to in the Rules as membership
capacity statuses.
(c) Every individual member who is a lessee, a Chicago Board of
Trade exerciser, or an owner (who is not a lessor) must have an
authorized floor function. An individual member is deemed to have an
authorized floor function if the member is approved by the Membership
Committee to act as a Market-Maker and/or Floor Broker.
[Individual memberships may be owned by a natural person who is at
least 21 years of age and who, except for a lessor, is registered as a
broker or dealer pursuant to Section 15 of the Securities Exchange Act
of 1934, as amended, or is associated with a registered broker or
dealer, and who meets the qualifications for membership in accordance
with these Rules.]
. . . Interpretations and Policies:
.01 Individual membership statuses that are approved by Exchange
bodies other than the Membership Committee (along with the primary
Exchange Rule that provides for such approval) include: (i) DPM
Designee (Rule 8.81); (ii) FLEX Appointed Market-Maker for FLEX Index
Options (Rule 24A.9); (iii) FLEX Qualified Market-Maker for FLEX Equity
Options (Rule 24A.9); (iv) Lead Market-Maker in OEX or DJX options
(Rule 8.15); and (v) Supplemental Market-Maker in OEX or DJX options
(Rule 8.15).
Qualifications and Membership Statuses of Member Organizations
RULE 3.3. (a) An organization must satisfy the following
requirements in order to be a member organization:
(i) the organization must be a corporation or partnership organized
under the laws of one of the states of the United States;
(ii) the organization must be registered as a broker or dealer
pursuant to Section 15 of the Exchange Act, except that an organization
that is approved to act solely as a lessor is not required to comply
with this requirement; and
(iii) the organization must meet the other qualification
requirements for membership under the Constitution and Rules.
A corporation or partnership that is not organized under the laws of
one of the states of the United States must satisfy the requirements
set forth in Rule 3.4, in lieu of satisfying the requirements set forth
in this paragraph (a), in order to be a member organization.
(b) The member organization membership statuses that are approved
[[Page 63067]]
by the Membership Committee (along with the primary Exchange Rule that
provides for such approval if it is not Rule 3.9) include: (i) owner*;
(ii) lessor*; (iii) lessee*; (iv) member organization for which an
individual member has registered his or her membership*; (v) member
organization approved to transact business with the public* (Rule 9.1);
(vi) Clearing Member; and (vii) order service firm* (Rule 6.77). The
member organization permit statuses that are approved by the Membership
Committee are IPC Permit Exerciser* (Rule 3.26) and Options Trading
Permit holder* (Rule 3.27). Those individual membership statuses noted
with an asterisk are also referred to in the Rules as membership
capacity statuses.
(c) A member organization that is a Clearing Member or an order
service firm is required to possess at least one membership for which
the organization is not a lessor.
(d) A member organization that desires to become a different type
of business entity permitted under the Rules must apply for membership
in the name of the new entity.
[(a) Memberships may be owned or leased by or registered for a
corporation organized under the laws of one of the states of the United
States or under other laws as the Board shall approve, or a
partnership. The corporations or partnerships must be brokers or
dealers registered pursuant to Section 15 of the Securities Exchange
Act of 1934, as amended, except for corporations or partnerships that
are lessors and that meet the qualifications for membership in
accordance with these Rules.]
[(b) With respect to each membership owned or leased by a
corporation or partnership, the membership organization must designate
an individual nominee in accordance with Rule 3.8, and Article II,
Section 2.3 of the Constitution.
(c) With respect to each membership registered for a corporation or
partnership pursuant to Article II, Section 2.4 of the Constitution,
the member organization shall be represented by the individual member
who registered his/her membership for the organization.]
. . . Interpretations and Policies:
.01 For purposes of eligibility for membership, an entity
organized as a [Limited Liability Company] limited liability company
under the laws of one of the states of the United States [or under
other such laws as the Board shall approve,] shall be deemed a
corporation, its members shall be deemed principal shareholders, and
its members with management responsibility and its managers shall be
deemed executive officers.
.02 Member organization membership statuses that are approved by
Exchange bodies other than the Membership Committee (along with the
primary Exchange Rule that provides for such approval) include:
Designated Primary Market-Maker (Rule 8.83).
Qualifications of Foreign Member Organizations
RULE 3.4. (a) An organization that is not organized under the laws
of one of the states of the United States must satisfy the following
requirements in order to be a member organization:
(i) the organization must be a corporation or partnership organized
under the laws of a country other than the United States;
(ii) the organization must disclose to the Exchange all persons
associated with the organization and all parents of the organization,
through all tiers of ownership, until the ultimate individual
beneficial owners of the organization are disclosed;
(iii) the organization must maintain in English and at a location
in the United States the books and records of the organization that
relate to its business on the Exchange;
(iv) the organization must maintain its financial records in
accordance with United States accounting standards or foreign
accounting standards that are found by the Exchange to be comparable to
United States accounting standards;
(v) the organization must waive any secrecy laws in the domiciliary
jurisdiction of the organization;
(vi) the organization must provide to the Exchange an opinion of
legal counsel of the domiciliary jurisdiction of the organization which
certifies that (A) there are no secrecy laws in that jurisdiction and
that the organization has effectively waived any future such laws or
(B) that the organization has effectively waived any current or future
secrecy laws in that jurisdiction;
(vii) the organization must agree to submit to the jurisdiction of
the federal courts of the United States and the courts of Illinois and
to irrevocably waive, to the fullest extent permitted by law, any
objection which the organization may have based on venue or forum non
conveniens with respect to any action initiated in such courts;
(viii) the organization must appoint a process agent in Illinois to
receive, on the behalf of the organization, process which may be served
in any legal action or proceeding;
(ix) the organization must own its Exchange membership(s);
(x) the organization must be registered as a broker or dealer
pursuant to Section 15 of the Exchange Act;
(xi) the organization must satisfy the foregoing requirements in a
manner and form prescribed by the Exchange and must satisfy such
additional requirements that the Exchange reasonably deems appropriate;
and
(xii) the organization must meet the other qualification
requirements for membership under the Constitution and Rules.
. . . Interpretations and Policies:
.01 For purposes of eligibility for membership, an entity
organized as a limited liability company under the laws of a country
other than the United States shall be deemed a corporation, its members
shall be deemed principal shareholders, and its members with management
responsibility and its managers shall be deemed executive officers.
Denial of and Conditions to Membership and Association
RULE [3.4] 3.5 (a) The Membership Committee shall deny membership
where an applicant has failed a required membership test.
(b) The Membership Committee may deny (or may condition) membership
or may prevent a person from becoming associated (or may condition an
association) with a member for the same reasons that the Securities and
Exchange Commission [(SEC)] may deny or revoke a broker-dealer
registration and for those reasons required or allowed under the
[Securities] Exchange Act [of 1934, each as amended from time to time].
[(b) The Membership Committee shall deny membership where an
applicant has failed the required test, and such an applicant must wait
30 days before taking the examination a second time, 60 days if a
second attempt is failed, and 120 days if a third or subsequent attempt
is failed.]
(c) The Membership Committee also may deny (or may condition)
membership or may prevent a person from becoming associated (or may
condition an association) with a member when the applicant: [, directly
or indirectly,]
[(1)](i) [has a negative net worth,] is a broker-dealer and (A) has
a net worth (excluding personal assets) below $25,000 if the applicant
is an individual, (B) has a net worth (excluding personal assets) below
$50,000 if the applicant is an organization, (C) has financial
difficulties involving an amount that is more than [five percent] 5% of
the
[[Page 63068]]
applicant's net worth, or (D) has a pattern of failure to pay just
debts; [(whether or not such debts have been the subject of a
bankruptcy action);]
[(2)](ii) is unable satisfactorily to demonstrate a capacity to
adhere to all applicable Exchange, [SEC, Options Clearing Corporation]
Securities and Exchange Commission, Clearing Corporation, and Federal
Reserve Board policies, rules, and regulations, including those
concerning record-keeping, reporting, finance, and trading procedures;
[(3)](iii) would bring the Exchange into disrepute; or
[(4)](iv) for such other cause as the Membership Committee
reasonably may decide.
[(d) When an applicant is a subject of an investigation conducted
by any self-regulatory organization or government agency and involving
his fitness for membership, the Membership Committee need not act on
his application until the matter has been resolved.]
([e]d) The Membership Committee may determine not to permit a
member or person associated with a member to continue in membership or
association with a member or may condition such continuance in
membership or association, if the member or associated person:
(i) fails to meet any of the qualification requirements for
membership or association after the membership or association has been
approved[,];
(ii) fails to meet any condition placed by the Membership Committee
on such membership or association[,]; or
(iii) violates any agreement with the Exchange[,]. [or
(iv) becomes subject to a statutory disqualification under the
Exchange Act.
(f) If a member, or person associated with a member, who becomes
subject to a statutory disqualification under the Exchange Act, wants
to continue in Exchange membership or association with a member, the
member or associated person must, within 30 days of becoming subject to
a statutory disqualification, submit an application to the Membership
Committee seeking to continue in Exchange membership or association
with a member notwithstanding the statutory disqualification. Failure
to timely file such an application is a factor that may be taken into
consideration by the Membership Committee in making determinations
pursuant to Rule 3.4(e).]
(e) Any decision made by the Membership Committee pursuant to
paragraph (a), (b), (c), or (d) of this Rule must be consistent with
both the provisions of this Rule and the provisions of the Exchange
Act.
([g]f) Any applicant who has been denied membership or association
with a member or granted only conditional membership or association
pursuant to [Rule 3.4(a), (b), or (c)] paragraph (a), (b), or (c) of
this Rule, and any member or person associated with a member who is not
permitted to continue in membership or association with a member or
whose continuance in membership or association is conditioned pursuant
to [Rule 3.4(e)] paragraph (d) of this Rule, may appeal the Membership
Committee's decision under Chapter XIX. No determination of the
Membership Committee to discontinue or condition a person's membership
or association with a member pursuant to paragraph (d) of this Rule
[3.4(e)] shall take effect until the review procedures under Chapter
XIX have been exhausted or the time for review has expired.
Persons Associated with Member Organizations
RULE [3.5] 3.6. (a) Persons associated with member organizations
shall be bound by the Constitution and Rules of the Exchange and of the
Clearing Corporation. The Exchange may bar a person from becoming or
continuing to be associated with a member organization if such person
does not agree in writing, [on a] in a manner and form prescribed by
the Exchange, to furnish the Exchange with information with respect to
such person's relationship and dealings with the member
organization[s], and information reasonably related to such person's
other securities business, as may be required by the Exchange, and to
permit the examination of its books and records by the Exchange to
verify the accuracy of any information so supplied.
(b) Each associated person of a member organization that is
required to be disclosed on Exchange Act Form BD as a direct owner or
executive officer (or, if the member organization is not required to be
a registered broker-dealer, each associated person of the organization
that would be required to be disclosed on Form BD as a direct owner or
executive officer in the event that the organization was a registered
broker-dealer) is required to submit to the Membership Department,
pursuant to Rule 3.9, an application for approval to become associated
with the member organization in that capacity. No person may become
associated with a member organization in the capacity of a direct owner
or executive officer that is (or would be) required to be disclosed on
Form BD unless and until the Membership Committee approves that
association.
[(b) Each member organization shall file with the Exchange and keep
current a list and descriptive identification of those persons
associated with the member organization who are its executive officers,
directors, principal shareholders, general partners and limited
partners. Such persons shall file with the Exchange a Uniform
Application for Securities Industry Registration or Transfer (Form U-
4).]
(c) A claim of any [person associated with a member organization
described in the first sentence of paragraph (b) of this Rule against
such organization] associated person required to be approved by the
Membership Committee pursuant to paragraph (b) of this Rule against the
member organization with which that person is associated shall be
subordinate in right of payment [of] to customers and other members.
Certain Documents Required of [Applicants and] Members, Applicants, and
Associated Persons
RULE [3.6] 3.7 (a) Each member and member applicant shall promptly
file the following documents with the Membership Department:
(i) each member organization and member organization applicant that
is a corporation shall promptly file with the Membership Department a
copy of the articles or certificate of incorporation of the
organization, the by-laws of the organization, and all amendments to
those documents;
(ii) each member organization and member organization applicant
that is a partnership shall promptly file with the Membership
Department a copy of any registration certificate of the organization,
the partnership agreement of the organization, and all amendments to
those documents;
(iii) each member organization and member organization applicant
shall promptly file with the Membership Department any other documents
relating to the registration, governance, capital structure, or
ownership of the organization that are requested by the Exchange; and
(iv) each member and member applicant shall promptly file with the
Membership Department any other documents requested by the Exchange
that are reasonably related to that member's business on the Exchange
or proposed business on the Exchange.
(b) Each member and member applicant shall promptly file with the
Membership Department its business and residence addresses, an address
[[Page 63069]]
where notices may be served, and any changes to this information.
(c) Each member shall comply with the provisions of Exchange Act
Section 17(f) and Exchange Act Rule 17f-2 respecting the fingerprinting
of the member and its covered employees. Each member applicant and its
covered employees shall also be fingerprinted in accordance with those
provisions.
[(a) Although the Exchange may request additional information, at a
minimum offering circulars, private placement memoranda, the
partnership agreement and all amendments thereto, in the case of a
member partnership, the articles of incorporation, by-laws and all
amendments thereto, in the case of a member corporation, and any lease
agreement to which a membership is subject pursuant to Rule 3.16(b),
shall be filed with the Membership Department and shall be subject to
review by the Exchange; however, no action or failure to act by the
Exchange shall be construed to mean that the Exchange has in any way
passed on the investment merits of or given approval to any such
document.
(b) Every member shall file with the Membership Department and keep
current an address where notices may be served.
(c) In a manner and form prescribed by the Exchange, every member
and every executive officer, director, principal shareholder, general
partner and limited partner of a member organization shall pledge to
abide by the Constitution and Rules of the Exchange, as from time to
time amended, and by all circulars, notices, directives or decisions
adopted pursuant to or made in accordance with the Constitution and
Rules.]
(d) Each member and member applicant that is a registered broker or
dealer pursuant to Section 15 of the Exchange Act shall complete
Exchange Act Form BD and keep its Form BD current by promptly
completing any required amendments to its Form BD. Each member or
applicant that is a registered broker-dealer shall also promptly file
with the Membership Department, in a manner prescribed by the Exchange,
its Form BD and all required amendments thereto. Each member and member
applicant that is not required to be a registered broker-dealer shall,
in a manner and form prescribed by the Exchange, promptly file with the
Exchange a list and descriptive identification of those associated
persons of the organization that have been, and that are applying to
be, approved by the Membership Committee pursuant to Rule 3.6(b) and
any changes to this information.
(e) In a manner and form prescribed by the Exchange, each member,
member applicant, and associated person required to be approved by the
Membership Committee pursuant to Rule 3.6(b) shall pledge to abide by
the Constitution and Rules of the Exchange, as from time to time
amended, and by all circulars, notices, directives, or decisions
adopted pursuant to or made in accordance with the Constitution and
Rules.
(f) All documents filed with the Membership Department by members,
applicants, and associated persons shall be subject to review by the
Exchange; however, no action or failure to act by the Exchange shall be
construed to mean that the Exchange has in any way passed on the
investment merits of the member, applicant, or associated person, or
the adequacy of disclosure given to investors by the member, applicant,
or associated person, or that the Exchange has in any other way given
approval to any such document.
([d]g) [Members and member organizations] Each member shall keep
and maintain a current copy of the Constitution and Rules in a readily
accessible place. Member organizations that are approved to do business
with the public pursuant to Rule 9.1 shall make the Constitution and
Rules available for examination by customers.
. . . Interpretations and Policies
.01 For purposes of paragraph (a)(i) of this Rule, an entity
organized as a limited liability company shall promptly file with the
Membership Department a copy of the registration certificate of the
organization, the operating agreement of the organization, and all
amendments to those documents.
[Parents of Member Organizations
RULE 3.7. Deleted June 28, 1995 (95-21).]
Nominees and Members Who Register Their Memberships for Member
Organizations
RULE 3.8. (a) Each member organization that is the owner of a
membership for which the member organization will not be acting as a
lessor and each member organization that is a lessee of a membership
shall be subject to the following provisions:
(i) the member organization must designate an individual nominee to
represent the organization with respect to that membership in all
matters relating to the Exchange;
(ii) if the member organization is the owner or lessee of more than
one such membership, the organization must designate a different
individual to be the nominee for each of the memberships;
(iii) each nominee of a member organization designated pursuant to
subparagraph (a)(i) of this Rule is required to have an authorized
floor function, except that a nominee of a member organization that is
approved solely to transact business with the public pursuant to Rule
9.1 is not required to comply with this requirement;
(iv) each nominee of a member organization designated pursuant to
subparagraph (a)(i) of this Rule must be approved for membership in
accordance with the Rules; and
(v) each nominee of a member organization designated pursuant to
subparagraph (a)(i) of this Rule who is approved for membership shall
be deemed to be an individual member.
(b) Each member organization that is the owner of a membership for
which the member organization will be acting as a lessor shall be
subject to the following provisions:
(i) the member organization must designate an individual nominee to
represent the organization with respect to that membership in all
matters relating to the Exchange;
(ii) if the member organization will be acting as a lessor for more
than one membership, the organization must designate a single
individual to act as the nominee with respect to all of those
memberships;
(iii) the nominee of the member organization for the membership(s)
with respect to which the organization will be acting as a lessor may
not have an authorized floor function with respect to such
membership(s);
(iv) the nominee of the member organization for the membership(s)
with respect to which the organization will be acting as a lessor must
satisfy all of the qualification requirements for membership, except
for those requirements that are not applicable to lessors or that are
applicable solely to members who will have an authorized floor
function; and
(v) the nominee of the member organization for the membership(s)
with respect to which the organization will be acting as a lessor shall
be deemed to be an associated person of the organization and shall not
be deemed to be an individual member by virtue of being approved to act
as the nominee for such membership(s).
(c) Each individual member who owns a membership and each Chicago
Board of Trade exerciser may apply to register his or her membership
for a member organization. Upon approval of such an application, an
individual who has
[[Page 63070]]
registered his or her membership for a member organization shall
represent the organization in all matters relating to the Exchange in
the same manner that a nominee represents a member organization. Each
individual who registers his or her membership for a member
organization must have an authorized floor function.
(d) A member organization represented by a nominee or by an
individual who has registered his or her membership for the
organization shall, in a manner and form prescribed by the Exchange:
(i) authorize that person to represent the organization with
respect to all matters relating to the Exchange;
(ii) agree to be responsible for all obligations arising out of
that person's representation of the member organization in all matters
relating to the Exchange; and
(iii) agree to guarantee payment of all monetary disciplinary
sanctions assessed against that person with respect to activity that
takes place while the person is a nominee of the organization or has
registered his or her membership for the organization.
The responsibility of the member organization pursuant to subparagraph
(d)(ii) of this Rule shall include all obligations to the Exchange and
all obligations to other members resulting from Exchange transactions
or transactions in other securities made by the person on behalf of the
member organization. A nominee shall not, solely by virtue of being a
nominee of a member organization, have any personal liability to the
Exchange or to any other member for Exchange transactions and other
securities transactions made by the nominee on behalf of the member
organization. Similarly, an individual shall not, solely by virtue of
registering his or her membership for a member organization, have any
personal liability to the Exchange or to any other member for Exchange
transactions and other securities transactions made by the individual
on behalf of the member organization.
(e) The following requirements shall apply to every nominee of a
member organization and to every individual who has registered his or
her membership for a member organization:
(i) the person must be materially involved in the daily operation
of the Exchange business activities of the member organization for
which the person is a nominee or has registered his or her membership;
(ii) the person may have authorized floor functions only on behalf
of one member organization; and
(iii) the person may perform floor functions only on behalf of the
member organization for which the person is approved by the Exchange to
perform such functions and may not perform floor functions on the
person's own behalf or on behalf of another member organization.
(f) Notwithstanding the provisions of subparagraph (e)(iii) of this
Rule, a nominee or person who has registered his or her membership for
a member organization may act as an independent Market-Maker and/or an
independent Floor Broker if the following 4 requirements are satisfied:
(A) the person obtains the prior written approval to do so, in a
manner and form prescribed by the Exchange, from the member
organization for which the person is approved by the Exchange to
perform floor functions;
(B) the member organization for which the person is approved by the
Exchange to perform floor functions agrees, in a manner and form
prescribed by the Exchange, to guarantee all obligations arising out of
that person's activities as an independent Market-Maker and/or an
independent Floor Broker;
(C) the person is registered as a broker or dealer pursuant to
Section 15 of the Exchange Act; and
(D) the person obtains the prior approval to act in this capacity
from the Membership Committee.
A person who is approved to act as an independent Market-Maker and/or
an independent Floor Broker pursuant to this paragraph (f) shall be
personally responsible for all obligations arising out of those
activities, and the member organization for which the person is
approved by the Exchange to perform floor functions shall guarantee
these obligations.
(g) A member organization may designate one or more inactive
nominees. An ``inactive nominee'' of a member organization is an
individual who is eligible to become an effective nominee of that
organization with respect to any membership for which the organization
is either an owner (and not a lessor) or is a lessee. The following
requirements shall apply to inactive nominees:
(i) to become an inactive nominee of a member organization, an
individual must be approved for membership and become an effective
nominee of the member organization, with authorized floor functions,
within 90 days of the approval for membership;
(ii) an individual may be an inactive nominee of only one member
organization;
(iii) an inactive nominee shall have no rights or privileges of
membership and shall have no right of access to the trading floor of
the Exchange, unless and until the inactive nominee becomes an
effective member pursuant to Rule 3.10; and
(iv) if at any time an individual remains an inactive nominee for 6
consecutive months, the individual's eligibility for membership will be
terminated and the individual must reapply for membership in order to
again become eligible for inactive nominee status.
[(a)(1) Pursuant to Rule 3.3, every member organization that owns
or leases a membership must authorize an individual nominee
(``nominee''), as defined in Rule 1.1(pp), to represent the
organization with respect to such membership in all matters relating to
the Exchange.
(2) The member organization represented by a nominee shall guaranty
all obligations arising out of such nominee's representation of the
member organization in all matters relating to the Exchange. The
guaranty shall include all obligations to the Exchange and all
obligations to other members or member organizations resulting from
Exchange transactions or transactions in other securities, including
such transactions of the nominee as an independent Market-Maker and/or
independent Floor Broker for the nominee's own account as authorized in
Paragraph (a)(4)(C) of this Rule.
(3) The authorization and guaranty required in Paragraphs (a)(1)
and (2) of this Rule shall be on a form or forms prescribed by the
Exchange and filed with the Membership Department.
(4) The following requirements shall apply to all nominees:
(A) A nominee must be approved for membership in accordance with
the Rules of the Exchange.
(B) A nominee may perform floor functions only on behalf of the
member organization for which he is authorized.
(C) Notwithstanding the provisions of paragraph (B) above, a
nominee, who is a registered broker/dealer, may trade as an independent
Market-Maker and/or independent Floor Broker; provided that the nominee
has the prior written approval of the member organization and the
Exchange. Such approval shall be filed with the Membership Department.
(b)(1) A member organization may designate an individual as an
``inactive nominee''. The member organization shall pay a fee, as
determined by the Board, for the privilege of maintaining the inactive
nominee status.
[[Page 63071]]
(2) The following requirements shall apply to inactive nominees:
(A) To be eligible for inactive nominee status, an individual must
be approved for membership in accordance with the Rules of the
Exchange.
(B) An inactive nominee shall have no rights or privileges of
membership and shall have no right of access to the trading floor of
the Exchange, unless and until said inactive nominee becomes an
effective member pursuant to Rule 3.10, and all applicable Exchange
fees are paid.
(C) If an inactive nominee does not become an effective member
within six (6) months of approval by the Membership Committee, or if at
any time an individual remains an inactive nominee for six (6)
consecutive months, the individual's eligibility for membership will be
terminated. In order to again become eligible for membership or
inactive nominee status, the individual must reapply for membership
pursuant to Rule 3.9.]
. . . Interpretations and Policies:
.01 Nothing in paragraph (d) of this Rule is intended to define or
limit (i) any obligations between a nominee of a member organization,
or an individual who has registered his or her membership for a member
organization, and the member organization itself, (ii) any
responsibility such a person may have for obligations of a member
organization by virtue of a contractual obligation or ownership
relationship to the organization beyond merely being a nominee or
individual who has registered his or her membership for the
organization, or (iii) the ability of the Exchange to sanction or take
other remedial action against such a person pursuant to other Exchange
rules for rule violations or other activity for which remedial measures
may be imposed.
Application Procedures and Approval or Disapproval
RULE 3.9. (a) Any individual or organization desiring to become a
member, any applicant or member desiring to act in one or more of the
membership statuses set forth in Rule 3.2(b) or 3.3(b), any associated
person required to be approved by the Membership Committee pursuant to
Rule 3.6(b), and any member desiring to change the Clearing Member that
guarantees the member's Exchange transactions shall submit an
application to the Membership Department in a form and manner
prescribed by the Exchange.
(b) The Membership Committee shall establish for each type of
[membership] application a submission deadline of up to 90 days prior
to the date that such an application will be considered for approval.
These submission deadlines shall be published in a regulatory circular.
[A membership] An application must be submitted to the Membership
Department in accordance with the applicable submission deadline in
order to be eligible for consideration. [All application fees must be
filed with the application. Application fees are not refundable.]
(c) Any required application fees must be filed with the
application and are not refundable.
(d) Each applicant shall promptly update the application materials
submitted to the Membership Department if any of the information
provided in these materials becomes inaccurate or incomplete after the
date of submission of the application to the Membership Department and
prior to any approval of the application.
([b]e) Within a reasonable time following receipt of an application
for membership, an application to change membership capacity statuses
set forth in Rule 3.2(b) or 3.3(b), or an application to change
Clearing Members, the name of the applicant and the application request
shall be published in the Exchange Bulletin and posted on the Exchange
Bulletin Board. The Membership Committee shall determine for each type
of the foregoing applications the required time period that the above
information must be posted on the Exchange Bulletin Board, provided
that in no event shall any such required posting period be less than 10
days. Notwithstanding the foregoing, the required posting period for a
member's application to change Clearing Members shall be waived if the
Clearing Member(s) that will no longer be guaranteeing the member's
Exchange transactions consent to such waiver in a form and manner
prescribed by the Exchange. The Membership Committee may also determine
to implement a posting period requirement for other types of
applications submitted pursuant to paragraph (a) of this Rule. The
Membership Committee may shorten or waive a required posting period for
an applicant if the Membership Committee determines that doing so is
warranted due to extenuating circumstances.
(f) The Membership Department shall investigate each applicant
applying to be a member organization, each associated person required
to be approved by the Membership Committee pursuant to Rule 3.6(b), and
each applicant applying to be an individual member (with the exception
of any individual member applicant who was an individual member within
6 months prior to the date of receipt of that applicant's membership
application by the Membership Department). The Membership Department
may also investigate any other person or organization that submits an
application pursuant to paragraph (a) of this Rule.
[(c) Before an application is approved by the Membership Committee:
(1) Every individual applicant and, in the case of applicant
organizations, all persons associated with the organization, shall be
investigated by the Membership Department. The applicant shall file
with the Membership Department any additional documents that may be
required by the Exchange.
(2) An applicant seeking trading privileges shall have completed
the requirements of Rule 6.71, Registration of Floor Brokers, or Rule
8.2, Registration of Market-Makers, including attending the New Member
Orientation Program and taking the Floor Member Qualification Exam.
(3) The name of the applicant shall have been posted on the
Exchange Bulletin Board for at least 10 days.
(d) An applicant must be approved by the Membership Committee to
perform in at least one of the recognized capacities of a member as
stated in Paragraph (b) of Rule 3.1.]
(g) Any person applying pursuant to paragraph (a) of this Rule to
have an authorized floor function is required to have attended the
Exchange's New Member Orientation Program and to have passed the
Exchange's Floor Member Qualification Exam. Additionally, any person
who has attended the New Member Orientation Program and taken and
passed the Floor Member Qualification Exam and who then does not
possess an authorized floor function for more than 1 year is required
to re-attend the New Member Orientation Program and to re-pass the
Floor Member Qualification Exam in order to once again become eligible
to have an authorized floor function. A person must score 75% or better
on the Floor Member Qualification Exam in order to pass the Exam. Any
person who fails the Floor Member Qualification Exam must wait 30 days
to re-take the Exam after failing the Exam for the first time, must
wait 60 days to re-take the Exam after failing the Exam for the second
time, and must wait 120 days to re-take the Exam after failing the Exam
for a third or subsequent time. The Exchange may not waive any of the
requirements set forth in this paragraph (g).
[[Page 63072]]
(h) The Membership Committee may approve an application submitted
pursuant to paragraph (a) of this Rule only if any applicable posting
period requirement pursuant to paragraph (e) of this Rule has been
satisfied, any investigation pursuant to paragraph (f) of this Rule has
been completed, and any applicable orientation and exam requirements
pursuant to paragraph (g) of this Rule have been satisfied.
(i) Each applicant that submits an application pursuant to
paragraph (a) of this Rule and each person associated with the
applicant shall submit to the Membership Department any additional
information requested by the Exchange in connection with the Exchange's
review of the application and may be required to appear before the
Membership Committee and/or a File Review Subcommittee of the
Membership Committee for an in-person interview or interviews.
([e]j) Upon completion of the application process, the Membership
Committee shall consider and vote on the approval or disapproval of the
application, unless there is just cause for delay. One such just cause
for delay is when an applicant is the subject of an inquiry,
investigation, or proceeding conducted by a self-regulatory
organization or governmental authority that involves the applicant's
fitness for membership. In such an instance, the Membership Committee
need not act on any application submitted by that applicant until the
matter has been resolved. [Individual applicants and persons associated
with applicant organizations may be required to appear in person before
the Membership Committee or a subcommittee thereof. The Committee may
also require any member or person associated with a member organization
who may possess information relevant to the applicant's suitability for
membership to provide information or testimony.]
([f]k) Approval of an application requires a vote of the majority
of the members of the Membership Committee then in office. Any
applicant that is approved to be a member by the Membership Committee
must be approved by the Membership Committee to perform in at least one
of the recognized capacities of a member as stated in Rule 3.1(b).
Written notice of the action of the Membership Committee, specifying in
the case of disapproval of an application the grounds therefor, shall
be provided to the applicant.
([g]l) If the application process is not completed within [six (6)]
6 months of the [filing] submission of the application[form] and the
appropriate fee(s), the application shall be deemed to be automatically
withdrawn.
. . . Interpretations and Policies:
.01 Any member that submits an application pursuant to paragraph
(a) of this Rule to change Clearing Members shall submit to the
Membership Department along with the application a financial statement
in a form prescribed by the Exchange which sets forth the member's
assets and liabilities. The Membership Department shall provide a copy
of this financial statement to the new Clearing Member designated in
the application.
.02 The Membership Committee may disapprove the membership
application of an organization if the Membership Committee determines
that the name of the organization is confusingly similar to the name of
an existing member organization. A member organization desiring to
change the name of the organization shall submit an application to the
Membership Department in a form and manner prescribed by the Exchange.
As with member organization applicants, the Membership Committee may
disapprove a name change requested by a member organization if the
Membership Committee determines that the desired name is confusingly
similar to the name of another member organization. For the purposes of
this Interpretation and Policy .01, the name of an organization shall
include both its official name and the name under which the
organization conducts business.
Effectiveness of Membership [Applications] or Approved Associated
Person Status
RULE 3.10. (a) Each applicant for membership, for one of the
membership statuses set forth in Rule 3.2(b) or 3.3(b), or for an
approved associated person status pursuant to Rule 3.6(b) must become
effective in that status within 90 days of the date of the applicant's
approval for that status, except that an applicant to become a lessor
may become effective in that status within 6 months of the date of the
applicant's approval for that status.
(b) An applicant for membership shall become an effective member
upon (i) satisfying the applicable requirements to obtain a membership
and (ii) release of a membership to that member by the Membership
Department.
[Applicants must become effective members within 90 days of the
date of approval by the Membership Committee; provided that applicants
for inactive nominee status must become effective members within 6
months. Applicants shall become effective as follows:
(a) An applicant for membership pursuant to paragraph (b) of
Article Fifth of the Certificate of Incorporation upon release by the
Membership Department.
(b) An individual or organizational applicant for membership upon
purchase of and payment for an Exchange membership and release by the
Membership Department.
(c) A lessee applicant upon the transfer of a membership to his use
pursuant to Rule 3.16 and release by the Membership Department.
(d) A nominee applicant shall become effective when the member
organization notifies the Membership Department in writing that the
nominee should become effective on a specific date on a specific
membership.]
Notice of [Membership] Effectiveness of Membership or Approved
Associated Person Status
RULE 3.11. Promptly following the effectiveness of any membership,
membership status pursuant to Rule 3.2(b) or 3.3(b), or associated
person status pursuant to Rule 3.6(b), notice of such effectiveness
shall be published in the Exchange Bulletin.
[With respect to each membership that becomes effective in
accordance with Rule 3.10, the Membership Department shall promptly
mail a notice thereof to all members and shall post a copy of such
notice on the bulletin board of the Exchange.]
[Ownership of] Membership Rights and Restrictions on Their Transfer
RULE 3.12. (a) No rights shall be acquired by ownership of a
regular membership except the right to an aliquot part of the net
assets, if any, remaining after the payment of all debts and
obligations of the Exchange in the event of its dissolution and winding
up and, if the owner of the membership is in good standing, such rights
as may be provided by the Constitution and Rules to members in good
standing.
(b) Except for the rights granted to the grantee of an
Authorization to Sell a membership pursuant to Rule 3.14(d) and Rule
3.15(b):
(i) The Exchange shall not recognize any interest in the property
or other rights represented by a membership except that of its owner as
registered with the Exchange.
(ii) No recognition or effect shall be given by the Exchange to any
agreement or to any instrument entered into or executed by a member or
his legal representatives which purports to transfer or assign the
interest of the
[[Page 63073]]
member in the member's membership, or in the proceeds or any part
thereof, or which purports to create any lien or other right with
respect thereto, or which purports in any manner to provide for the
disposition of such proceeds to a creditor of such member, nor shall
payment of such proceeds be made by the Exchange on the order of such
member.
[No rights shall be acquired by ownership of a regular membership
except the right to an aliquot part of the net assets, if any,
remaining after the payment of all debts and obligations of the
Exchange in the event of its dissolution and winding up and, if the
owner of the membership is in good standing, such rights as may be
provided by the Constitution and Rules to members in good standing.
Special members shall have no interest in or any right to share in any
distribution of the property and assets of the Exchange in the event of
its dissolution and winding up.]
Purchase of Membership
RULE 3.13. (a) Newly Issued Memberships. [Newly issued memberships
may be purchased by approved applicants, through the Membership
Department, when and as made available by the Exchange. Memberships
purchased under this Paragraph (a) shall be acquired and paid for
within 10 days of the applicant's receipt of the Notice of Approval
issued pursuant to Rule 3.8.] When and as made available by the
Exchange, newly issued memberships may be purchased, pursuant to
procedures established by the Exchange, by those approved to be an
owner or lessor.
(b) Outstanding Memberships. Outstanding transferable memberships
with respect to which notices of sale have been filed under Rule
3.14(a) may be purchased [by approved applicants,] through the
Membership Department and in accordance with the following procedures
by those approved to be an owner or lessor. [All bids from approved
applicants] Each membership bid must be submitted in writing to the
Membership Department [of the Exchange]. Only those approved to be an
owner or lessor may submit a bid and any such bid shall be canceled at
such time that the bidder is no longer approved to be an owner or
lessor. Provided that a bid is not canceled pursuant to the foregoing
sentence, the bid shall remain in effect for 6 months unless written
revocation of the bid is received by the Membership Department. The
Membership Department will file [all bids by class of membership] each
bid according to the highest price and the earliest submission date.
The highest bid with the earliest filing date will be posted on the
Exchange [bulletin board] Bulletin Board and published in the Exchange
Bulletin. [All bids remain in effect for six months unless written
revocation thereof is received by the Membership Department.] When a
bid filed in accordance with the procedures of this [P]paragraph (b) is
matched with an offer filed in accordance with the [provisions]
procedures of Rule 3.14(a), neither can be changed or withdrawn.
[Memberships purchased under this Paragraph (b) shall be acquired and
paid for within 90 days of the applicant's receipt of the Notice of
Approval issued pursuant to Rule 3.8.]
(c) Payment. Not later than the second business day following the
acceptance of a bid pursuant to paragraph (a) of this Rule or the
matching of [the] a bid and offer pursuant to paragraph (b) of this
Rule, the purchaser shall deliver to the Membership Department a
certified or cashier's check made payable to the Exchange covering the
purchase price of the membership.
Sale and Transfer of Membership
RULE 3.14. (a) Sale by Owner. The owner of a transferable
membership [who] that desires to sell [his] the membership shall submit
a written offer of sale to the Membership Department. Each offer shall
remain in effect for 6 months unless written revocation of the offer is
received by the Membership Department. The Membership Department will
file [all such offers by class of membership] each offer according to
the lowest price and the earliest submission date. The lowest offer
with the earliest filing date will be posted on the Exchange [bulletin
board] Bulletin Board and published in the Exchange Bulletin. [All
offers remain in effect for six months unless written revocation
thereof is received by the Membership Department. After] When an offer
filed in accordance with the procedures of this [P]paragraph (a) is
matched with a bid filed in accordance with the [provisions] procedures
of Rule 3.13(b), neither can be changed or withdrawn. The owner of a
membership for which [A member who has filed an offer of sale shall, so
long as he] an offer of sale has been matched with a bid shall, so long
as the member remains in good standing and until the purchase price of
the membership has been paid, continue to have all of the rights [and
privileges, and shall remain subject to all of the duties and
obligations,], privileges, duties, and obligations of membership.
(b) Sale [or Cancellation] by Exchange. Whenever one or more of the
following conditions exist with respect to a [transferable regular
membership or a special] member that is the owner or lessee of a
transferable membership, the Exchange may offer the membership for sale
in accordance with Rule 3.14(a):
([1]i) An individual member has died or has been declared legally
incompetent, and the owner or the legal representative of [such member]
the owner has failed to consummate a transfer of the membership[(s)]
within 6 months of the member's death or incompetence or within such
extended time as may have been granted by the Exchange;
([2]ii) A member's good standing has been terminated, or has been
suspended and has failed to be reinstated at the expiration of the
period of suspension including any extension of such period [which]
that may have been granted by the Exchange;
([3]iii) A member organization has been dissolved, formally or
informally, and no transfer of its membership[(s)] has been
accomplished within 6 months of the dissolution or within such extended
time as may have been granted by the Exchange.
[Whenever one or more of such conditions exist with respect to a
special membership and the Exchange determines not to offer such
special membership for sale, the Exchange may cancel such special
membership by filing a cancellation of special membership form with the
Membership Department. Notice of each such cancellation shall be mailed
to all members and shall be posted on the bulletin board of the
Exchange. Following such cancellation, the individual or organization
having its special membership cancelled shall cease to have any of the
rights, privileges or obligations of membership.]
(c) Transfer by Owner. The owner of a transferable membership may
transfer [such] the membership without adhering to the provisions
contained in Rule 3.13(b) and [3.14(a)] paragraph (a) of this Rule so
long as one of the following qualifying circumstances is applicable to
and descriptive of the desired transfer and the transferee is approved
[for membership in accordance with the Rules of the Exchange] to be an
owner or lessor:
([1]i) The owner of a transferable membership (whether or not
[such] the membership is registered for a member organization) requests
the transfer of [such] the membership to [his] the member's spouse,
brother, sister, parent, child, grandparent, or grandchild;
[[Page 63074]]
([2]ii) The owner of a transferable membership requests the
transfer of [such] the membership to an organization which has
succeeded, through statutory merger, exchange of stock, or acquisition
of assets to the business of the transferor;
([3]iii) The owner of a transferable membership requests the
transfer of [such] the membership to an organization in which the
transferor will maintain [a substantial interest, that is,] an interest
at least equal in value to the [cost or] current market price of the
membership [whichever is lower]; or
([4]iv) The owner of a transferable membership requests the
transfer of such membership to an individual or organization which is a
partner or shareholder of the transferor as part or all of a
liquidation distribution of the transferor.
[Notwithstanding the foregoing, transfers pursuant to this Paragraph
(c) shall not become effective until there has been deposited with the
Membership Department an amount equal to the last sale of a membership
of the same class as the membership being transferred or an acceptable
Letter of Guarantee from a Clearing Member for such amount, which
amount shall be applied as though it were proceeds of the sale of a
membership for the purposes of Rule 3.15.]
(d) Authorizations to Sell. The owner of a transferable membership
may voluntarily grant to another Exchange member an Authorization to
Sell the membership. Authorizations to Sell shall be subject to the
following provisions:
(i) An Authorization to Sell shall be effective only if it has been
executed on a form prescribed by the Exchange and filed with the
Membership Department.
(ii) A membership owner may not grant an Authorization to Sell a
particular membership to more than one member.
(iii) The grantee of an Authorization to Sell shall have all of the
authority granted under the Constitution and Rules relating to the sale
of the membership that would otherwise be vested in the membership
owner, including the sole authority to determine whether and when to
submit an offer to sell the membership in accordance with the
provisions of paragraph (a) of this Rule. Notwithstanding the
foregoing, a grantee of an Authorization to Sell must (A) notify the
membership owner in writing at least 3 business days prior to
exercising the grantee's right to sell the membership of any decision
by the grantee to exercise that right and (B) provide the Membership
Department with written verification in a form and manner prescribed by
the Exchange that the required notice has been provided to the
membership owner.
(iv) A membership owner that has granted an Authorization to Sell
shall have no authority to direct the sale or transfer of the
membership. An Authorization to Sell shall be irrevocable and may only
be canceled if the grantee of the Authorization to Sell consents to its
cancellation in a form and manner prescribed by the Exchange.
(v) When a membership owner has granted an Authorization to Sell a
membership, the Exchange shall take direction solely from the grantee
of the Authorization to Sell with respect to matters relating to the
sale of the membership. Notwithstanding the foregoing, a membership
owner and a grantee may have a written contract between them which sets
forth the circumstances under which the grantee may exercise the
grantee's authority to sell the membership, and any breaches of this
written contract may be redressed through arbitration under Chapter
XVIII of the Rules or through other means permitted by that Chapter.
The membership owner and the grantee shall promptly file with the
Membership Department a copy of any such contract and any amendments
thereto.
(vi) In the event a grantee of an Authorization to Sell exercises
the grantee's right to sell the membership by submitting an offer to
sell the membership in accordance with the provisions of paragraph (a)
of this Rule, the grantee may not be the purchaser of the membership
and no bid submitted by the grantee pursuant to Rule 3.13(b) shall be
matched with the offer to sell the membership unless the membership
owner consents in a form and manner prescribed by the Exchange to
having the grantee be the purchaser of the membership.
(vii) Following the receipt by the Membership Department of an
Authorization to Sell that has been granted by a member, a cancellation
of the Authorization to Sell, or a contract concerning the exercise of
authority under the Authorization to Sell, the Membership Department
shall provide a copy of the applicable document to any Clearing Member
that guarantees the member's Exchange transactions.
(viii) The grant of an Authorization to Sell a membership shall
include the grant of a security interest in any proceeds from the sale
of the membership that the grantee of the Authorization to Sell is
entitled to receive pursuant to Rule 3.15(b), and a properly executed
Authorization to Sell form that has been filed with the Membership
Department shall constitute a security agreement which grants the
foregoing security interest to the grantee of the Authorization to
Sell. The grantee of an Authorization to Sell may act to perfect the
foregoing security interest under applicable law, which may include the
filing of one or more UCC-1 Financing Statements. However, failure by a
grantee of an Authorization to Sell to perfect the foregoing security
interest under applicable law shall not affect the rights of the
grantee under the Rules. In the event of a cancellation of an
Authorization to Sell pursuant to paragraph (d)(iv) of this Rule, the
grantee of the Authorization to Sell shall promptly file a Termination
Statement with every filing authority where UCC-1 Financing Statements
were filed with respect to the Authorization to Sell. The grantee of an
Authorization to Sell shall promptly file with the Membership
Department a file-stamped copy of any UCC filings made with respect to
the Authorization to Sell.
Proceeds from Sale of Membership
RULE 3.15. (a) In the event of a sale of a membership for which no
Authorization to Sell has been granted, the Exchange shall remit the
sale proceeds from the sale of the membership to the member whose
membership was sold promptly following receipt of the sale proceeds by
the Exchange pursuant to Rule 3.13(c).
(b) In the event of a sale of a membership for which an
Authorization to Sell has been granted:
(i) The grantee of the Authorization to Sell shall have 2 business
days from the date of the sale to notify the Membership Department in
writing of any claims the grantee has against the member whose
membership was sold. Such claims shall be limited to claims that are
related to the Exchange business activities of the member whose
membership was sold.
(ii) For the purposes of this Rule, claims related to Exchange
business activities shall include, but not be limited to, claims
associated with Exchange transactions, securities or futures
transactions other than on the Exchange that are related to Exchange
transactions or positions resulting from Exchange transactions, loans
or guarantees of loans for the purpose of purchasing an Exchange
membership, and services provided in connection with any of the
foregoing. Whether a claim is related to Exchange business activities
shall be determined solely by the Exchange.
[[Page 63075]]
(iii) The written claims notification provided by the grantee of
the Authorization to Sell shall be in a form prescribed by the Exchange
and shall specify the amount and nature of the claims. Promptly
following its receipt by the Membership Department, the Membership
Department shall provide a copy of the written claims notification to
the member whose membership was sold.
(iv) The member whose membership was sold shall have 5 business
days from the date of the sale to either acknowledge or contest, in a
form and manner prescribed by the Exchange, the claims set forth in the
written claims notification. In the event the member whose membership
was sold does not contest a claim in the written claims notification
within the prescribed time period and in the manner prescribed by the
Exchange for doing so, the claim shall be deemed to have been
acknowledged by the member whose membership was sold.
(v) Promptly following the expiration of the 5 business day period
under subparagraph (b)(ii) of this Rule:
(A) The Exchange shall remit to the grantee of the Authorization to
Sell that portion of the sale proceeds applicable to claims in the
written claims notification that were acknowledged by the member whose
membership was sold.
(B) The Exchange shall escrow that portion of the remaining sale
proceeds applicable to claims in the written claims notification that
were contested by the member whose membership was sold.
(C) The Exchange shall remit to the member whose membership was
sold any portion of the sale proceeds remaining after the provision for
any payments and escrow under the above provisions.
(vi) Any portion of the sale proceeds applicable to contested
claims that has been escrowed pursuant to this Rule shall remain in
escrow until the grantee of the Authorization to Sell and the member
whose membership was sold resolve the claims through arbitration under
Chapter XVIII of the Rules or through other means permitted by that
Chapter. Notwithstanding the foregoing, the Exchange may determine to
release the escrowed portion of the sale proceeds to the member whose
membership was sold in the event the Exchange determines that the
grantee of the Authorization to Sell is not proceeding in good faith to
resolve the contested claims. Escrowed sale proceeds shall bear
interest at the prevailing money market rate determined by the
Exchange. The interest on the escrowed sale proceeds shall be available
to contribute toward the satisfaction of the contested claims.
(vii) Following the resolution of any contested claims for which
sale proceeds have been escrowed pursuant to this Rule, the grantee of
the Authorization to Sell and the member whose membership was sold
shall notify the Membership Department in a form and manner prescribed
by the Exchange of the resolution of the claims. Following receipt by
the Membership Department of notification of the resolution of the
contested claims, the Exchange shall promptly (A) remit to the grantee
of the Authorization to Sell that portion of the escrowed sale proceeds
and interest thereon to which the grantee is entitled pursuant to the
resolution and (B) remit to the member whose membership was sold that
portion of the escrowed sale proceeds and interest thereon to which the
member whose membership was sold is entitled pursuant to the
resolution.
[Upon any sale of a membership pursuant to Rule 3.14, the Exchange
shall hold the proceeds of the sale for a period of 20 days from the
date of posting notice of the sale in the Exchange Bulletin and on the
Exchange bulletin board(s), during which period claims against the
proceeds may be filed by members for payment in accordance with this
Rule. As soon as practicable following such 20 day period, the proceeds
shall be applied by the Exchange to the following purposes and in the
following order of priority:
(a) The payment of such sums as the Board shall determine are or
may become due to the Exchange from the member or from the member
organization on whose behalf the membership was registered.
(b) The payment of such sums as the Board shall determine are or
may become due to the Clearing Corporation from the member whose
membership is transferred or from the member organization on whose
behalf the membership was registered.
(c) The payment of such sums as the Board shall determine are due
by such member or by the member organization on whose behalf the
membership was registered to other members in payment of claims made by
such other members arising directly as a result of (1) Exchange
transactions, (2) transactions of such member in securities other than
on the Exchange which are effected or carried in an account maintained
by a clearing member or (3) loans or guarantees of loans to such member
or member organization for the purpose of purchasing an Exchange
membership or for any purpose other than the purchase of securities
which loans were made or guaranteed by such other members. No claim
asserted under this paragraph shall be considered by the Board nor
shall any member asserting such a claim have any rights thereunder,
unless a written statement of such claim shall have been filed with the
Membership Department prior to the expiration of the 20-day period
referred to in the first paragraph of this Rule. If the proceeds of the
sale of a membership are insufficient to pay in full all claims allowed
under this paragraph, payment shall be made pro rata upon all such
allowed claims.
(d) If a claim is contingent or the amount that ultimately will be
due thereon cannot, for any reason, be immediately ascertained or
determined, the Board in its sole discretion may, out of the proceeds
of the sale of the membership, reserve and retain for later
distribution in accordance with the Rules such amount as it may deem
appropriate, pending the determination of the amount due on such claim.
(e) After provision for the payment of the sums payable under
paragraphs (a), (b) and (c) hereof and provision for the reserve, if
any, under paragraph (d) hereof, there may, in the discretion of the
Board, be deducted from the remaining proceeds and paid to the Exchange
the amount of any unusual expenses incurred by the Exchange involving
the disposition of such proceeds.
(f) The surplus, if any, of proceeds of the transfer of a
membership, after provision for the above payments and the setting
aside of the reserve under paragraph (d) hereof, shall be paid to the
member whose membership is transferred, or to his or its legal
representatives.
(g) No recognition or effect shall be given by the Exchange to any
agreement or to any instrument entered into or executed by a member or
his legal representatives which purports to transfer or assign the
interest of such member in his or its membership, or in the proceeds or
any part thereof, or which purports to create any lien or other right
with respect thereto, or which purports in any manner to provide for
the disposition of such proceeds to a creditor of such member, nor
shall payment of such proceeds be made by the Exchange on the order of
such member.]
. . . Interpretations and Policies:
[.01 Notwithstanding the language of paragraph (g) of the Rule and
subject to the provisions in paragraphs (a) through (f) respecting
disposition of proceeds of sale, the Exchange may recognize and
[[Page 63076]]
give effect to a valid instrument by which a member, in consideration
of a loan or guarantee of a loan by another member for the purpose of
purchasing a membership, has authorized the lending or guaranteeing
member to sell that membership.]
.01[.02] It is the policy of the Exchange not to impose a transfer
fee on the sale of an Exchange membership and not to remit to the
[selling] member whose membership was sold any interest earned while
the proceeds of the sale are held by the Exchange [pursuant to Rule
3.15], except as provided in subparagraphs (b)(iv) and (b)(v) of this
Rule with respect to escrowed sale proceeds.
[.03 Where sums are or may become due to more than one Clearing
Corporation, the priority set forth in paragraph (b) shall inure to the
benefit of each such Clearing Corporation pro rata.]
Special Provisions Regarding Chicago Board of Trade Exerciser
Memberships
RULE 3.16. (a) [Surrender of Memberships] Termination of
Nontransferable Memberships. [Individuals or organizations owning
nontransferable memberships acquired pursuant to paragraph] A
nontransferable membership acquired by a person pursuant to Paragraph
(b) of Article Fifth of the Certificate of Incorporation [or owning
special memberships may surrender such memberships by giving notice
thereof to the Membership Department, which shall terminate such
membership] shall terminate (i) upon receipt by the Membership
Department of written notice from the person that the person is
surrendering the membership or (ii) at such time that the person is no
longer entitled to membership on the Exchange in accordance with
Paragraph (b) of Article Fifth of the Certificate of Incorporation.
Notice of each such termination shall be [mailed to all members and
shall be posted on the bulletin board of the Exchange] published in the
Exchange Bulletin.
[(b) Leased Memberships. (i) The owner of a transferable regular
membership in good standing may lease such membership to an individual
or organization, provided the lessee is approved for membership in
accordance with the Rules of the Exchange. Lease agreements, which must
be approved by the Exchange in accordance with Rule 3.6, shall include
provisions covering (A) the duration of the lease arrangement; (B) the
consideration to be paid by the lessee; (C) the assignability of the
respective interests of the lessee and lessor in such lease agreement;
and (D) as between the parties, which party shall exercise the voting
rights of the membership and which party shall provide the funds
necessary to satisfy all applicable Exchange dues, fees and other
charges. Any division of rights and responsibilities between lessor and
lessee shall not affect the obligation of the lessor to pay all amounts
due the Exchange.
(ii) The Lease of a regular membership or the reversion of a
previously leased membership to the lessor upon termination of the
lease agreement shall not become effective until there has been
deposited with the Membership Department an amount equal to the last
membership sale or an acceptable Letter of Guarantee from a Clearing
Member for such amount, which amount shall be applied to claims of
member creditors of the previous lessee which arose in the course of
that previous lease arrangement or of the lessor as though it were
proceeds of the sale of a membership for the purposes of Rule 3.15
hereof.
(iii) In the event the lessor of a membership effects a sale
thereof pursuant to the provisions of Rule 3.14(a), claims may be made
against the proceeds from the sale of such membership in accordance
with Rule 3.15 by members having claims against either the lessee or
the lessor, with priority given to claims made against the lessee.
(iv) Special memberships shall not be leasable.]
(b[c]) Board of Trade Exercisers. For the purpose of entitlement to
membership on the Exchange in accordance with Paragraph (b) of Article
Fifth of the Certificate of Incorporation of the Exchange (``Article
Fifth(b)'') the term ``member of the Board of Trade of the City of
Chicago'' (the ``CBOT''), as used in Article Fifth(b), is interpreted
to mean an individual who is either an ``Eligible CBOT Full Member'' or
an ``Eligible CBOT Full Member Delegate,'' as those terms are defined
in the Agreement entered into on September 1, 1992 (the ``Agreement'')
between the CBOT and the Exchange, and shall not mean any other person.
In order to permit Eligible CBOT Full Members and Eligible CBOT Full
Member Delegates to participate in an offer, distribution or redemption
of the kind referred to in the last two sentences of Paragraph 3(a) of
the Agreement, and solely for such purpose, the Exchange agrees to
waive all membership dues, fees and other charges and all qualification
requirements, other than those that may be imposed by law, that may be
applicable to the application for membership on the Exchange of each
Eligible CBOT Full Member and Eligible CBOT Full Member Delegate who
wishes to exercise the Exercise Right during the period commencing on
the date the Exchange gives notice to the CBOT pursuant to Paragraph
3(b) of the Agreement and ending on the date such individual
participates in such offer, distribution or redemption (as the case may
be); provided, however, that (i) no Exerciser Member (as defined in the
Agreement) for whom dues, fees and other charges and qualification
requirements are waived in accordance with the foregoing shall have any
rights as a member of the Exchange other than to participate in such
offer, distribution or redemption, and (ii) the membership on the
Exchange of each such Exerciser Member shall terminate immediately
following the time such individual participates in such offer,
distribution or redemption.
Leased Memberships
RULE 3.17. (a) The owner of a transferable membership in good
standing may lease the membership to an individual or organization,
provided that the lessee is approved for membership in accordance with
the Rules, the lease is made pursuant to a written lease agreement, and
the lease is pre-approved by the Exchange. The Exchange shall bear no
liability to a lessor or lessee in connection with the Exchange's
review and approval of a lease agreement.
(b) A lessor of a membership shall not have any liability for
claims against a lessee of that membership solely by virtue of being a
lessor of the membership. Nothing in this paragraph (b) is intended to
limit or define any responsibility a lessor may have for claims against
a lessee by virtue of a contractual obligation or ownership
relationship between the lessor and lessee beyond the lease of a
membership from the lessor to the lessee.
(c) Each membership lease agreement must include such provisions as
may be required by the Exchange and must also include provisions
covering the following subjects: (i) the duration of the lease
arrangement; (ii) the consideration to be paid by the lessee; (iii) the
assignability of the respective interests of the lessee and lessor in
the lease agreement; (iv) as between the parties, which party shall
exercise the voting rights of the membership; and (v) as between the
parties, which party shall provide the funds necessary to satisfy all
applicable Exchange dues, fees, and other charges.
(d) The lessee under a lease shall promptly file the lease
agreement and any amendments thereto with the
[[Page 63077]]
Membership Department and shall promptly notify the Membership
Department of any termination of the lease before the termination
becomes effective.
(e) In the event a lessor sells or transfers a membership while it
is being leased to a lessee, the purchaser or transferee of the
membership shall be required to lease the membership to the lessee
pursuant to the terms of the lessee's existing lease agreement with the
lessor for a period of 20 business days following the date the
membership is transferred to the purchaser or transferee. The purchaser
or transferee may satisfy this requirement by making arrangements with
another membership owner to permit the lessee to lease a membership
from that membership owner for the required time period pursuant to the
terms of the lessee's existing lease agreement. The lessee may waive
the requirements of this paragraph (e) in a form and manner prescribed
by the Exchange. It shall be a violation of this Rule for a lessor to
circumvent the requirements of this paragraph (e) by improperly
terminating a membership lease prior to the sale or transfer of the
membership for the purpose of avoiding the applicability of the
requirements of this paragraph (e). If the Exchange determines that
such a circumvention has taken place, the Exchange may impose the
requirements of this paragraph (e) upon the purchaser or transferee of
the membership and/or take disciplinary action against the lessor
pursuant to Chapter XVII of the Rules.
(f) In the event a lessor sells or transfers a membership while it
is being leased to a lessee, the lessor shall remit to the purchaser or
transferee of the membership no later than the date the membership is
transferred to the purchaser or transferee any amounts paid to the
lessor by the lessee under the lease agreement for any portion of the
lease period, up to 20 business days from the transfer date, during
which the lessor will no longer be leasing the membership to the
lessee. The lessor shall also remit to the lessee by the transfer date
any amounts paid to the lessor by the lessee under the lease agreement
for any portion of the lease period beyond 20 business days from the
transfer date. Notwithstanding the foregoing, in the event the lessee
waives the requirements of paragraph (e) of this Rule, the lessor shall
remit to the lessee by the transfer date all amounts paid to the lessor
by the lessee under the lease agreement for any portion of the lease
period during which the lessor will no longer be leasing the membership
to the lessee.
Members and Associated Persons Who Are or Become Subject to a Statutory
Disqualification
RULE 3.18. (a) The Exchange may determine in accordance with the
provisions of this Rule not to permit a member or associated person of
a member to continue in membership or association with a member, or to
condition such continuance in membership or association, if the member
or associated person is or becomes subject to a statutory
disqualification under the Exchange Act.
(b) If a member or associated person of a member who is or becomes
subject to a statutory disqualification under the Exchange Act wants to
continue in Exchange membership or association with a member, the
member or associated person must, within 10 days of becoming subject to
a statutory disqualification, submit an application to the Membership
Department, in a form and manner prescribed by the Exchange, seeking to
continue in membership or association with a member notwithstanding the
statutory disqualification. The application shall be accompanied by
copies of all documents that are contained in the record of the
underlying proceeding that triggered the statutory disqualification.
(c) Following the receipt of an application submitted pursuant to
paragraph (b) of this Rule, or in the event the Exchange becomes aware
that a member or associated person of a member is subject to a
statutory disqualification and has failed to submit an application
pursuant to paragraph (b) of this Rule within the required time period,
the Chairperson of the Membership Committee shall appoint a panel
composed of the Membership Committee Chairperson and two other members
of the Membership Committee to conduct a hearing concerning the matter
pursuant to paragraph (f) of this Rule. In the case of recusal of the
Membership Committee Chairperson, the Chairperson shall appoint another
member of the Membership Committee to serve on the panel in place of
the Membership Committee Chairperson.
(d) Any person who is the subject of a proceeding under this Rule
is entitled to be accompanied, represented, and advised by counsel at
all stages of the proceeding.
(e) Any person who is the subject of a proceeding under this Rule
and any member or associated person of a member shall promptly submit
any information requested by the Membership Department or hearing panel
in connection with the proceeding.
(f) The hearing panel shall hold a hearing to determine whether to
permit the member or associated person of a member who is the subject
of a proceeding under this Rule to continue in membership or
association with a member, and if so, whether to condition such
continuance in membership or association. The hearing shall be held 14
or more days following the receipt of an application, or the initiation
of a proceeding, pursuant to paragraph (c) of this Rule. The Exchange
shall notify the subject of the proceeding in writing of the date,
time, and location of the hearing. Both the subject of the proceeding
and Exchange staff will be afforded an opportunity to present relevant
information, arguments, and witnesses during the hearing. The hearing
panel shall regulate the conduct of the hearing, and formal rules of
evidence shall not apply. The subject of the proceeding shall be
required to attend the hearing, and the Membership Department or
hearing panel may require any member or associated person of a member
to testify at the hearing. A verbatim record of the hearing shall be
kept.
(g) Following the hearing, the hearing panel shall present its
recommended decision to the Membership Committee, which may ratify or
amend the decision. Failure to timely file an application pursuant to
paragraph (b) of this Rule is a factor that may be taken into
consideration in rendering the decision. The decision shall be in
writing and set forth the basis for the decision. The decision shall be
promptly provided to the subject of the proceeding under this Rule and
to the Executive Committee. The Executive Committee may determine
within 7 days after the issuance of the Membership Committee's decision
to order review of the decision. If the Executive Committee does not
order review of the Membership Committee's decision, the Membership
Committee's decision shall become the final decision of the Exchange.
(h) If the Executive Committee orders review of the Membership
Committee's decision, the review shall be conducted by the Executive
Committee or a panel thereof composed of at least 3 members of the
Executive Committee, whose decision must be ratified by the Executive
Committee. Unless the Executive Committee shall decide to open the
record for the introduction of additional information or argument, any
determination to order review of the Membership Committee's decision
and any review of the decision shall be
[[Page 63078]]
based solely on the record of the proceeding. The decision of the
Executive Committee shall be in writing, shall be promptly provided to
the subject of the proceeding, and shall be the final decision of the
Exchange.
(i) No determination of the Membership Committee to discontinue or
condition a person's membership or association with a member pursuant
to this Rule shall take effect until the review procedures under
paragraph (h) of this Rule have been exhausted or the time for review
has expired.
. . . Interpretations and Policies:
.01 The Exchange may waive the provisions of this Rule when a
proceeding is pending before another self-regulatory organization to
determine whether to permit an associated person of a member to
continue in membership or association with the member notwithstanding a
statutory disqualification. In the event the Exchange determines to
waive the provisions of this Rule with respect to an associated person,
the Department of Financial and Sales Practice Compliance shall
determine whether the Exchange will concur in any Exchange Act Rule
19h-1 filing made by another self-regulatory organization with respect
to the associated person.
.02 If an associated person of a member is or becomes subject to a
statutory disqualification under the Exchange Act, the member shall
immediately provide written notice to the Membership Department of the
name of the associated person, the person's capacity with the member,
and the nature of the statutory disqualification.
[Death, Retirement, Withdrawal and Resignation] Termination from
Membership
RULE [3.17] 3.19. The membership status of a member shall
automatically terminate at such time that the member does not possess a
membership through ownership, lease, or registration of a membership to
the member. The membership of a member organization shall also
automatically terminate at such time that the member organization has
no nominee or person who has registered his or her membership for the
member organization. Notwithstanding the foregoing, if the Exchange
determines that there are extenuating circumstances, the Exchange may
permit a member to retain the member's membership status for such
period of time as the Exchange deems reasonably necessary to enable the
member to obtain a membership, a substitute nominee, or a substitute
person to register his or her membership for the member, as applicable.
[Upon the death, retirement, withdrawal or resignation from a
member organization of an individual member whose membership is
registered for the organization, of a nominee, or of the general
partner--leaving the organization without a membership or without a
nominee, or without a general partner--the Exchange may permit the
organization to continue to act as a member in good standing for such
period as the Exchange deems reasonably necessary to enable the
organization to acquire a membership, to obtain approval of a
substitute nominee, or to admit a new general partner, as applicable.]
Dissolution and Liquidation of Member Organizations
RULE [3.18] 3.20. Every member organization shall promptly [notify]
provide written notice to the Department of Financial and Sales
Practice Compliance [in writing upon the] and to the Membership
Department of any adoption of a plan of liquidation or dissolution of
the member organization and of any actual liquidation or dissolution of
the member organization. Upon receipt of such a notice, the member may
be suspended in accordance with Chapter XVI of the Rules.
Obligations of Terminating Members
RULE [3.19] 3.21. Each terminating member shall promptly (i)
return to the Exchange all Exchange badges, including trading and
access badges, that were issued to the member by the Exchange with
respect to that member's terminating membership status, (ii) make any
outstanding filings required under Exchange rules, and (iii) pay any
outstanding dues, fees, assessments, charges, fines, or other amounts
due to the Exchange, the Securities and Exchange Commission, or the
Securities Investor Protection Corporation.
[Every member who sells or transfers his membership pursuant to the
provisions of this Chapter must be current in all filings and payments
of dues, fees and charges relating to that membership, including filing
fees and charges required by the Securities and Exchange Commission and
the Securities Investor Protection Corporation. If a member fails to
make all such filings, or to pay all such dues, fees and charges, or to
turn in his trading badge and membership certificate, the Exchange may,
notwithstanding the other applicable provisions of this Chapter,
withhold distribution of the proceeds of sale of said membership, or
delay the effectiveness of the membership of the transferee, until such
time as any such failures have been remedied.
Government Securities Options Permits
RULE 3.20 Permits issued for effecting transactions pursuant to
Exchange Rules and policies in Government securities options settled by
physical delivery shall be effective for one year and shall be
renewable annually for a maximum duration of four years from the date
of issuance. Permits which are not renewed shall be retired and shall
not be reissued by the Exchange. Permits not issued by December 31,
1984 shall be withdrawn.
Privileges and Responsibilities of Permit Holders
RULE 3.21. (a) Privileges. Government securities options permits
issued by the Exchange shall entitle the holders to:
(i) be admitted to the Floor of the Exchange during business days;
(ii) enter into principal transactions as a Market-Maker in
Government securities options during the prescribed business hours and
days;
(iii) purchase a regular membership during the last month of the
three-year permit period in accordance with procedures established by
the Exchange;
(iv) such other privileges as may subsequently be granted by the
Board.
Permit holders, however, shall have no right to petition or to vote at
Exchange meetings or elections and shall have no interest in Exchange
assets.
(b) Nontransferability. The foregoing privileges may not be
transferred or assigned; however, an organization with an approved
permit-holder nominee may, upon approval of the Exchange, substitute
another permit-holder nominee.
(c) Dues and Fees. Fees for the first fifty (50) permits issued
shall be ten-thousand dollars ($10,000) per year. Permit holders shall
not be charged Exchange dues, but each permit holder and applicant for
a permit shall be subject to all other fees and charges established by
the Board.
. . . Interpretation and Policies:
.01 The Board has entitled permit holders to enter into agency
transactions as Floor Brokers in Government securities options during
the prescribed business hours and days.
Procedures for Government Securities Options Permit Issuance]
RULE 3.22. Reserved. [Permits may be issued to qualified applicants
who are either individuals or organizations with an approved nominee
meeting the same
[[Page 63079]]
qualifications as an individual permit holder. The Membership Committee
shall select the applicants who appear most qualified based on
demonstrated knowledge of and experience in the securities and related
industries, adequacy of financial resources and successful completion
of a proficiency examination.
Additional Government Security Options Permits
RULE 3.22A. The Exchange may issue up to 20 three-year permits for
effecting transactions in Government security options settled by
physical delivery, since no new permits may be issued under Rule 3.20.
All of these permits shall expire three years after September 14, 1987.
These additional permits shall have the same terms as the old permits
with the following exceptions. There is no right to purchase a regular
membership. No member or member organization may hold more than two
permits. A member who is a sole proprietor may employ a nominee to use
a permit, with the approval of the Membership Committee. The Membership
Committee may withdraw, temporarily or permanently, some or all unused
permits.]
Integrated Billing System
RULE 3.23. Every member must designate a [clearing member for the
payment of his] Clearing Member for the payment of the member's
Exchange invoices by means of the Exchange's integrated billing system
(``IBS''). The designated [clearing member] Clearing Member shall pay
to the Exchange on a timely basis any amount that is not disputed
pursuant to IBS procedures by the member who is directly involved. Such
payments shall be drafted by the Exchange against the designated
[clearing member's] Clearing Member's account at the Clearing
Corporation;. The [the] Clearing Corporation shall have no liability in
connection with its forwarding to the Exchange each month a check
representing the total amount that the Exchange advises the Clearing
Corporation is owed to the Exchange.
Member Death Benefit
RULE 3.24. (a) Upon the death of an individual who is eligible for
the Member Death Benefit, the Exchange shall pay the Member Death
Benefit to the beneficiary designated by such individual in a filing
made with the Membership Department in a form and manner prescribed by
the Exchange.
(b) The following individuals shall be eligible for the Member
Death Benefit:
(i) any individual who is an active member at the time of his or
her death; and
(ii) any individual who (i) was an active member within 90 days
prior to the date of his or her death and (ii) was an active member
during at least 274 out of the 365 days preceding the date of his or
her last termination from active member status.
(c) For the purposes of this Rule, the term ``active member'' shall
mean any natural person who is a nominee of a member organization, a
[CBT] Chicago Board of Trade exerciser, a lessee of an Exchange
membership, or an owner of an Exchange membership that is not being
leased to a lessee.
(d) In no event shall more than one Member Death Benefit be paid by
reason of the death of an individual who is eligible to receive the
Member Death Benefit.
(e) The Member Death Benefit shall be $50,000.
(f) In the event that the Exchange pays a Member Death Benefit, the
Exchange shall assess each active member at the time of the assessment
an amount equal to $50,000 divided by the number of active members at
the time of the assessment.
Transfer of Individual Membership in Trust
RULE 3.25. An individual member in good standing who owns a
membership may transfer [his] the membership in trust, subject to each
of the following conditions:
(a) Subject to paragraph (b) [below] of this Rule, the member
transferring [his] a membership in trust (the ``Trust Member''), during
[his] the member's lifetime, shall be the sole trustee and sole
beneficiary of the trust. The Trust Member shall remain personally
responsible for all obligations and liabilities associated with the
membership and its use, and the membership shall remain subject to all
of the Rules of the Exchange.
(b) The trust must be a living trust. The terms of the trust shall
provide that in the event the Trust Member dies, is declared legally
incompetent, or is in any condition that substantially impairs [his]
the Trust Member's ability to transact ordinary business (is
``disabled''), as certified in a written opinion furnished to the
Exchange by the Trust Member's physician who has personally examined or
treated [him] the Trust Member, a legally qualified individual or
institution may be appointed as successor trustee for the sole purpose
of transferring the membership in accordance with the Rules [of the
Exchange, including the requirements of Rule 3.15], subject to the
right of the Exchange to offer the membership for sale in accordance
with Rule 3.14(b)([1]i). Notwithstanding the foregoing, the terms of
the trust may authorize the successor trustee to continue to hold the
membership in trust for the benefit of the Trust Member during any
period when the Trust Member is declared legally incompetent or is
disabled so long as the membership is leased for that period in
accordance with the requirements of Rule 3.17 [3.16(b)]. Furthermore,
the trust shall provide that the Exchange shall bear no liability for
any actions taken or omitted by the Trust Member or any successor
trustee in respect of the administration of the trust or the management
of trust assets.
(c) A membership held in trust may be transferred during the
lifetime of the Trust Member or at [his] the Trust Member's death in
accordance with the provisions of Rule 3.14(c)([1]i), and may also be
transferred during the lifetime of the Trust Member in accordance with
the provisions of Rule 3.14(c)([3]iii), subject in either case to the
requirements of the introductory clause and the last sentence of Rule
3.14(c)]. Additionally, an Authorization to Sell may be granted with
respect to a membership held in trust, in which case the provisions of
Rule 3.14(d) and Rule 3.15(b) shall be applicable, and a membership
held in trust may be sold in accordance with the provisions of Rule
3.14 and Rule 3.15.
(d) A membership held in trust may also be transferred to the Trust
Member to be held directly and not in trust.
(e) A member desiring to transfer a membership into trust must
submit to the Membership Department, in a form and manner prescribed by
the Exchange, an application to transfer the membership into trust, a
[A] copy of the trust agreement reflecting the foregoing requirements
[shall be furnished to the Exchange, accompanied by], and the
certification of the attorney who prepared the trust agreement that it
conforms to the requirements of this Rule. The Exchange may disapprove
the transfer if it finds the trust agreement fails to satisfy the
requirements of this Rule by written notice of such disapproval sent to
the member proposing the transfer.
(f) After the transfer of a membership into trust has been approved
by the Exchange, the Trust Member must promptly submit to the
Membership Department any amendments to the trust agreement and must
promptly notify the Membership Department in writing of any changes in
the information set forth in the application
[[Page 63080]]
to transfer the membership into trust, any changes in successor
trustee, any release of the membership out of trust, and any
termination of the trust. In the event that the membership is released
from the trust, the trust terminates, or the trust agreement is amended
so that it no longer complies with the requirements of this Rule, the
Exchange shall deem the membership to have reverted to the Trust Member
to be held directly and not in trust.
IPC Permits
RULE 3.26. (a) IPC Permits. An IPC Permit shall be issued to each
of the 33 persons who were members of the Bolsa Mexicana de Valores as
of January 1, 1996. IPC Permits are non-transferable in any manner,
whether by voluntary or involuntary sale, gift, lease or otherwise. A
holder of an IPC Permit shall have either the right set forth in
[sub]paragraph (b) or the right set forth in [subparagraph (c) of this
Rule 3.26] paragraph (c) of this Rule.
(b) IPC Permit Exercisers. A holder of an IPC Permit may apply on
its own behalf or on behalf of one of its subsidiaries to become an IPC
Permit Exerciser. Such applications shall be subject to the same
approval procedures as are applicable under the Rules of the Exchange
to applications for membership. If the person on whose behalf the
application is filed is qualified for membership on the Exchange and if
the application is approved and becomes effective, the applicant shall
become an IPC Permit Exerciser and shall have the rights, obligations,
and limitations set forth below.
(1) Rights and Privileges. IPC Permit Exercisers shall enjoy the
privileges of CBOE membership with respect to, and only with respect
to, the trading of IPC Index Option Contracts. Among such privileges
are (i) the right of a nominee of the IPC Permit Exerciser to access
the trading floor for the purpose of executing orders upon satisfaction
of all regulatory requirements and approvals that apply to membership
generally; (ii) the right, through a nominee, to register and to be
appointed as a Market-Maker in IPC Index Options; (iii) the right,
through a nominee, to register and to act as a Floor Broker in IPC
Index Options; (iv) the right to pay transaction fees to the Exchange
at the member firm rate for transactions in IPC Index Options in its
proprietary account; and (v) the right to use Exchange facilities in
support of its trading in IPC Index Options on the same basis as other
members of the Exchange. The rights of an IPC Permit Exerciser are not
transferable in any manner.
(2) Obligations. IPC Permit Exercisers and their associated persons
shall be obligated to comply with all of the provisions of the Rules of
the Exchange and the federal securities laws to the same extent as
other members of the Exchange and their associated persons. For this
purpose, all references in the Exchange Rules to members shall be
deemed to include IPC Permit Exercisers. Without limiting the
generality of the foregoing, such obligations shall include (i) the
obligation to pay all fees, dues, and other charges imposed by the
Exchange, (ii) the obligation to maintain and to file with the Exchange
all records required of members and their associated persons, (iii) the
obligation to take all required examinations, (iv) the obligation to
comply with the Exchange's business conduct and floor dealing rules,
(v) the obligation, if acting as a Market-Maker, to perform the
obligations of a Market-Maker, (vi) the obligation, if approved to
conduct business with the public, to comply with the provisions of
Chapters IX and XII of the [Exchange's] Rules, (vii) the obligation to
be subject to the Exchange's disciplinary and arbitration jurisdiction
under Chapters XVII and XVIII, respectively, of the [Exchange's] Rules,
and (viii) the obligation to be subject to the Exchange's limitation of
liability rules.
(3) Limitations. IPC Permit Exercisers shall have none of the
rights of members under the laws of the State of Delaware, the
Certificate of Incorporation of the Exchange, or the Constitution of
the Exchange. Without limiting the generality of the foregoing, IPC
Permit Exercisers shall have no interest in the property or assets of
the Exchange, shall have no right to share in any distribution in the
property and assets of the Exchange, shall have no right as an IPC
Permit Exerciser to vote on issues submitted to the membership for
vote, and shall have no right as an IPC Permit Exerciser to be elected
to the Board of Directors. IPC Permit Exercisers will be deemed to be
non-members in respect of transactions in Exchange products other than
IPC Index Options, and registration of a nominee as a Market-Maker or
Floor Broker in IPC Index Options shall not be deemed to give the
nominee the right to effect transactions in such capacity in any other
Exchange product. Accordingly, nominees of IPC Permit Exercisers may
not while on the floor of the Exchange enter into transactions, nor
flash orders to other trading posts, give verbal orders to brokers at
other trading posts, or enter time-stamped orders to be executed by
other members at other trading posts, in any Exchange product other
than IPC Index Options, and if an IPC Permit Exerciser enters an order
through an Exchange member from off the floor in Exchange products
other than IPC Index Options, that order must be treated under the
Exchange's Rules as the order of a customer.
(c) Rights of Holders of IPC Permits. The Exchange transaction fees
for the proprietary transactions in IPC Index Options of holders of IPC
Permits that have not become IPC Permit Exercisers, either directly or
through a subsidiary, shall be charged at member firm rates.
Options Trading Permits
RULE 3.27. (a) Issuance, transfer and lease. Seventy-five Options
Trading Permits (``Permits'') shall be distributed on or promptly
following the date (herein called the ``Effective Date'') on which
trading begins on the floor of the Exchange in NYSE Options (as
hereinafter defined) pursuant to agreement between the Exchange and the
New York Stock Exchange (``NYSE''), as follows:
(1) Non-specialists. Each NYSE non-specialist options firm and sole
proprietor, or any successor thereto approved by the Exchange, doing
business on the NYSE options trading floor on the Effective Date will
be entitled to be issued the same number of Permits as that firm had
valid NYSE options floor badges on December 5, 1996; provided, however,
that, in order for a person to be entitled to be issued a Permit in
respect of a floor badge, the holder of that badge on December 5, 1996,
must personally engage in one or more of the activities specified in
subparagraph (b)(2) of this Rule on the Exchange.
(2) Specialist firms. Each NYSE specialist options firm (including
joint books) on the Effective Date, or any successor thereto approved
by the Exchange, will be entitled to be issued the same number of
Permits as that firm had valid NYSE options floor badges on December 5,
1996. Each specialist firm to which a Permit is issued shall have the
right to select the person who, from time to time, shall be its nominee
in respect of such Permit, subject to qualifying under the Rules of the
Exchange.
(3) Creation of lease pool and distribution of proceeds. The
Exchange will deposit into a ``lease pool'' any of the [seventy-five]
75 Permits not issued to firms in accordance with the foregoing
subparagraphs (1) and (2) hereof, as well as any Permits which may be
surrendered pursuant to subparagraph (4) hereof, and will
[[Page 63081]]
attempt to lease such Permits through an auction or other competitive
process determined by the Exchange. The proceeds received by the
Exchange on or before the first day of each calendar quarter from the
leases will be distributed on the fifteenth day of such calendar
quarter pro rata to the persons whose names and mailing address are on
a list furnished to the Exchange by NYSE on or after the Effective Date
as a list of the 92 persons who were (a) NYSE members using or leasing
out their NYSE options trading rights (``OTRs'') on September 5, 1996,
or (b) holders of separated OTRs on that date, or (c) transferees on or
prior to the Effective Date of such persons. The Exchange shall have no
responsibility or liability for any inaccuracy or mistake in such list.
[No lease of a Permit in the lease pool shall become effective until
there has been deposited with the Membership Department of the Exchange
an acceptable Letter of Guarantee from a Clearing Member in an amount
determined in accordance with the next sentence, which amount shall be
applied to the payment of claims pursuant to Rule 3.15 as though such
amount were the proceeds from the sale of a membership. During the
first year following the Effective Date and thereafter until there has
been a sale of a Permit, the amount shall be $50,000, and thereafter
the amount shall be equal to the last sale price of a Permit.] The
Exchange shall have no obligation as the lessor of a Permit to any
person.
(4) Surrender of Permits. In the event a Permit is issued pursuant
to subparagraph (1) hereof in respect of an NYSE options floor badge
and the NYSE badgeholder, or a successor approved by the Exchange, does
not engage in one or more of the activities specified in subparagraph
(b)(2) of this Rule for one year following the Effective Date, then,
unless the Exchange shall consent to the termination of such
activities, the Permit shall be deemed to be surrendered forthwith and
shall be added to the lease pool established pursuant to subparagraph
(3) hereof.
(5) Transfer and lease. Permits issued pursuant to subparagraphs
(1) and (2) hereof shall not be transferable (whether by sale, gift,
involuntary transfer, lease, or otherwise) for one year following the
Effective Date; provided that the foregoing shall not restrict the
right of specialist firms to change the nominee of a Permit issued
pursuant to subparagraph (2) hereof. Notwithstanding the foregoing, the
Exchange may consent to the transfer of a Permit in the event of the
death of, hardship affecting, or certain successions in ownership of
the holder of such Permit. Commencing one year after the Effective
Date, all Permits shall be freely transferable in accordance with the
provisions of the Rules applicable to the transfer of memberships.
(b) Trading rights. Each holder of a Permit who satisfies the
qualifications for membership in accordance with the Rules, or its
nominee in the case of a holder who is not a natural person (each such
holder or nominee is referred to herein as a ``Permit holder''), shall
for the term of the Permit be deemed to be a limited member of the
Exchange entitled to only the following trading rights and privileges:
(1) to be admitted to the options trading facility established by
the Exchange for the trading of NYSE Options during regular business
days;
(2) to engage in the activities of a Market-Maker, a DPM (as that
term is defined in Rule 8.80), and/or a Floor Broker in respect of NYSE
Options, in each case subject to the Rules of the Exchange applicable
to such activities;
(3) to trade by order as principal those classes of equity options
that were dually traded on both the Exchange and the [New York Stock
Exchange (``NYSE'')] NYSE on the last trading day preceding the
Effective Date and that continue to be traded on the Exchange;
(4) to trade by order as principal all classes of options traded on
the Exchange in addition to those described in clauses (2) and (3)
above, provided that a Permit holder's total contract volume in such
classes of options during any calendar quarter may not exceed twenty
percent (20%) of the sum of such Permit holder's total in person
contract volume as principal pursuant to clause (2) above and such
Permit holder's contract volume pursuant to clause (3) above during
such calendar quarter; and
(5) to be admitted to the other trading facilities of the Exchange
for the purpose of responding to a call of a Board Broker or Order Book
Official pursuant to Rule 7.5 in respect of any class of options in
which a transaction has been effected for the Permit holder's account
on the day of the call.
As used in this Rule, the term ``trade by order'' means a trade
effected on the Exchange by a member acting as Floor Broker for the
account of a Permit holder, and the term ``NYSE Options'' means (i)
those classes of options that were listed for trading on the NYSE
options trading floor on last trading day preceding the Effective Date
that were not then also listed for trading on the Exchange, and (ii)
those additional classes of equity options designated by the Exchange
as NYSE Options. During each of the seven years following the Effective
Date, the Exchange shall designate as NYSE Options classes of equity
options on at least 14 underlying stocks.
(c) DPMs. The Modified Trading System established in Rule 8.80 will
be employed in NYSE Options. Each specialist firm to which a Permit is
issued pursuant to subparagraph (a)(2) of this Rule shall be appointed
as the DPM in the same classes of NYSE Options as those for which it
was designated as a specialist on NYSE. Subject to the provisions of
the Rules, a Permit holder qualified to act as a DPM pursuant to the
Rules shall be appointed to act as the DPM for each class of equity
options designated by the Exchange pursuant to the last sentence of
paragraph (b) of this Rule. Each specialist firm appointed as a DPM in
a class of NYSE Options pursuant to the foregoing two sentences shall,
subject to the provisions of the Rules, continue to act as such DPM
during the term of the Permits and thereafter so long as it is a
regular member or member organization of the Exchange.
(d) Other rights and obligations.
(1) Except as may be otherwise set forth in the Constitution, in
this Rule 3.27 or in the other Rules, Permit holders shall have the
same rights as other members of the Exchange; provided that a Permit
shall not give an organization the right as a member to transact
business with the public in options or other securities dealt in on the
Exchange other than NYSE Options. Permit holders shall be subject to,
and obligated to comply with, the Rules of the Exchange to the same
extent as other members and their nominees, except as follows:
(A) Membership application fees shall be waived in connection with
(i) the submission of an application for approval as a Permit holder or
as the nominee of a Permit holder arising out of the initial issuance
of a Permit pursuant to subparagraph (a)(1) or (a)(2) of this Rule (but
shall not be waived in respect of applications by transferees or
lessees of a Permit or by subsequent nominees), (ii) the submission of
an application for approval as a member of the Exchange or as the
nominee of a member of the Exchange by a person who is the initial
holder of a Permit issued pursuant to subparagraph (a)(1) or (a)(2) of
this Rule, and (iii) the submission of an application for approval as
the nominee of a member of the Exchange by a person who at the time of
such application is the nominee of a NYSE specialist firm in respect of
a Permit issued pursuant to subparagraph (a)(2) of this Rule.
[[Page 63082]]
(B) In the event a person who is entitled to be issued a Permit
files an application pursuant to Rule 3.9, the rights of such person
shall be deemed to be effective for a temporary period terminating six
months following the Effective Date or the date on which the Membership
Committee gives written notice of its action on the application,
whichever is the earlier, provided such person is not subject to a
``statutory disqualification'' (as defined in the Securities Exchange
Act of 1934), is in good standing on the NYSE on the Effective Date,
and is not a subject of an investigation conducted by any self-
regulatory agency that may involve that person's fitness for membership
on the Exchange.
(C) All Permit holders shall be deemed to be appointed pursuant to
Rule 8.3 to all classes of NYSE Options; provided, however, that the
foregoing shall not affect the power of the appropriate Market
Performance Committee to suspend or terminate the appointment of any
Permit holder in accordance with the Rules.
(2) Permit holders shall have the right to serve on any committee
of the Exchange to which they are appointed.
(3) Permit holders shall not have the rights of members, or be
subject to the assessments on members, under Rule 3.24.
Extension of Time Limits
RULE 3.28. Any time limit imposed on an applicant, member, or other
person under this Chapter may be extended by the Membership Committee
in the event that the Membership Committee determines that such an
extension is warranted due to extenuating circumstances.
Delegation of Authority
RULE 3.29. (a) All of the authority granted to the Exchange under
this Chapter may be exercised by the Membership Committee and/or the
Membership Department.
(b) The Membership Committee may delegate to the Membership
Department any of the authority that is granted to the Membership
Committee under the Rules.
* * * * *
CHAPTER VI--Doing Business on the Exchange Floor
* * * * *
Limitation on Dealings
RULE 6.5. No regular member shall bid, offer, purchase or write
(sell) on the Exchange any security other than an option contract that
is currently open for trading in accordance with the provisions of
Chapter V. [No special member shall bid, offer, purchase, or write on
the Exchange any security other than an option contract relating to one
of the underlying securities listed in a guideline under this Rule 6.5
(MSE Options, as that term is defined in section 2.1(d) of the
Constitution) and currently open for trading in accordance with the
provisions of Chapter V.
. . . Interpretations and Policies:
.01 Special members may bid, offer, purchase, or write on the
Exchange option contracts currently open for trading only with respect
to the following underlying securities:
Ameritech
Diebold, Inc.
Anadarko Petroleum Corp.
Freeport-McMoRan, Inc.
Bristol-Myers Company
General Cinema Corp.
Champion International Corp.
IC Industries, Inc.
Chrysler Corporation
Litton Industries, Inc.
Coastal Corporation
Middle South Utilities, Inc.
Computer Associates International, Inc.
Ralston Purina Company
Corning Glass Works
Rockwell International Corporation]
* * * * *
RULE 6.20--Admission to and Conduct on the Trading Floor; Member
Education
* * * * *
. . . Interpretations and Policies:
* * * * *
.03 Deleted ________________, 199__ (99-______). [Rule 3.21 provides
that a Government securities options permit holder is entitled to enter
into principal transactions as a Market-Maker and agency transactions
as a Floor Broker in Government securities options settled by physical
delivery on the floor of the Exchange until his permit expires.]
* * * * *
Letters of Authorization
RULE 6.72. (a) Required of each Floor Broker. No Floor Broker shall
act as such on the Exchange unless there is in effect a Letter of
Authorization that has been issued for such Floor Broker by a Clearing
Member and filed with the Exchange. [A Floor Broker may have more than
one such letter on file with the Exchange; provided, however, that a
Letter of Authorization with an earlier effective date will afford the
Clearing Member issuing such letter a priority over each subsequent
issuer of a Letter of Authorization for claims made pursuant to Rule
3.15 against the proceeds from the sale of a membership by the entity
covered by such Letters of Authorization. The Exchange shall notify
each issuer of a Letter of Authorization of other outstanding Letters
of Authorization which have been issued to the same Floor Broker.]
(b) Terms of Letter of Authorization. A Letter of Authorization
shall be in a form prescribed by the Exchange and shall provide that
the issuing Clearing Member accepts financial responsibility for all
Exchange transactions made by the guaranteed Floor Broker.
(c) Revocation of Letter of Authorization. A Letter of
Authorization filed with the Exchange shall remain in effect until a
written notice of revocation has been filed with the [Exchange and
posted on the Exchange bulletin board. If such written notice has not
been posted for] Membership Department. If such a written notice of
revocation is not filed with the Membership Department at least one
hour prior to the opening of trading on a particular business day, such
revocation shall not become effective until the close of trading on
such day. Upon the request of the Clearing Member that files such a
written notice of revocation, the Exchange shall post notice of the
revocation on the Exchange Bulletin Board. A revocation shall in no way
relieve a Clearing Member of responsibility for transactions guaranteed
prior to the effective date of such revocation.
. . . Interpretations and Policies:
.01 Floor Brokers executing Government security options must have
a separate Letter of Authorization issued by a Debt Securities Clearing
Member.
.02 Floor Brokers engaging in transactions in securities subject
to the rules in Chapter XXX must have a separate Letter of
Authorization issued by a Clearing Member that is a member of the
Clearing Corporation for the security that is the subject of any such
transaction.
* * * * *
Automated Billing Process for Market-Maker Brokerage Bills
RULE 6.76A. (a) The Exchange shall administer the following
automated billing process for brokerage services that are provided to
Market-Makers by Floor Brokers and order service firms (``OSFs''):
(i) Each Floor Broker and OSF shall submit a written bill by the
6th day of the month to each Market-Maker customer of the Floor Broker
or OSF for brokerage fees incurred by the Market-Maker during the prior
month.
[[Page 63083]]
(ii) For the purposes of this Rule, the submission of a written
bill to a Market-Maker shall be deemed to include hand delivery of the
bill to the Market-Maker, hand delivery of the bill to a representative
of the Market-Maker such as the Market-Maker's clerk, or delivery of
the bill to the Market-Maker's Clearing Member with a written notation
that the bill is for the Market-Maker.
(iii) A Market-Maker who receives a brokerage bill from a Floor
Broker or OSF in accordance with this billing process shall have until
the 10th day of the month to inform the Floor Broker or OSF if the
Market-Maker disputes any portion of the bill. In the event the Market-
Maker disputes the bill, the Floor Broker or OSF may determine to
adjust the bill.
(iv) A Floor Broker or OSF that has submitted a written bill to a
Market-Maker by the 6th day of the month for brokerage fees incurred by
the Market-Maker during the prior month shall notify the Exchange's
Accounting Department by the 12th day of the month in a form and manner
prescribed by the Exchange of the amount to bill each Market-Maker
customer of the Floor Broker or OSF for brokerage fees incurred by the
Market-Maker during the prior month.
(v) The Exchange shall take direction solely from the Floor Broker
or OSF with respect to the amount to bill a Market-Maker pursuant to
this billing process. If for any reason a Market-Maker disputes the
amount a Floor Broker or OSF has instructed the Exchange to bill the
Market-Maker pursuant to this billing process, the Market-Maker may
pursue a claim against the Floor Broker or OSF in arbitration under
Chapter XVIII of the Rules or through other means permitted by that
Chapter.
(vi) The Accounting Department shall prepare a monthly Market-Maker
floor brokerage billing list for each Clearing Member that clears
Market-Maker transactions and provide this list to each such Clearing
Member by the 21st day of the month. The list shall set forth the
amounts Floor Brokers and OSFs have instructed the Accounting
Department to bill each Market-Maker that clears through that Clearing
Member for brokerage fees incurred by the Market-Maker during the prior
month.
(vii) A Clearing Member may instruct the Accounting Department in a
form and manner prescribed by the Exchange not to draft the Clearing
Member pursuant to this billing process for that portion of the
brokerage fees billed to a Market-Maker which would cause the Market-
Maker to have a negative balance in the Market-Maker's account at the
Clearing Member. Any such instruction must be provided to the
Accounting Department by the 22nd day of the month. In determining
whether a negative balance would result in a Market-Maker's account, a
Clearing Member may take into account deductions from the account that
have been accrued but which have not yet posted to the account.
(viii) On the 25th day of the month, the Exchange will draft from
each Clearing Member's account at the Clearing Corporation the total
amount billed pursuant to this Rule to Market-Makers that clear through
that Clearing Member (with the exception of amounts the Clearing Member
has instructed the Accounting Department not to draft pursuant to
subparagraph (a)(vii) of this Rule). Following the draft of these
funds, the Exchange shall promptly distribute the amounts drafted in a
manner prescribed by the Exchange to the Floor Brokers and OSFs that
provided billing instructions to the Accounting Department pursuant to
this billing process.
(ix) In the event a Clearing Member instructs the Accounting
Department pursuant to subparagraph (a)(vii) of this Rule not to draft
a portion of the brokerage fees billed to a Market-Maker:
(A) The Exchange shall, pursuant to subparagraph (a)(viii) of this
Rule, distribute on a pro rata basis to the Floor Brokers and OSFs that
submitted instructions to bill the Market-Maker, the portion of the
brokerage fees which were drafted from the Clearing Member for that
Market-Maker. This pro rata distribution shall be allocated based on
the amount that each Floor Broker and OSF instructed the Accounting
Department to bill the Market-Maker.
(B) If the Market-Maker later has a positive balance in the Market-
Maker's account at the Clearing Member, the Clearing Member shall
deduct from the account the amount of the brokerage fees that the
Clearing Member previously instructed the Accounting Department not to
draft. The Clearing Member shall then promptly distribute to those
Floor Brokers and OSFs who previously did not receive full payment the
amounts which were previously billed but not drafted pursuant to this
billing process. To the extent that any outstanding amounts that were
not previously drafted have been paid to a Floor Broker or OSF, the
Clearing Member shall not be required to deduct these amounts from the
Market-Maker's account and distribute them to the Floor Broker or OSF.
(x) If a Floor Broker or OSF fails to submit a written bill to a
Market-Maker customer by the 6th day of the month for brokerage fees
incurred by the Market-Maker during the prior month or if a Floor
Broker or OSF fails to notify the Accounting Department by the 12th day
of the month in the form and manner prescribed by the Exchange of the
amount to bill each Market-Maker customer for brokerage fees incurred
by the Market-Maker during the prior month, the Floor Broker or OSF may
not bill the Market-Maker for these brokerage fees pursuant to the
billing process set forth in this Rule. Notwithstanding the foregoing,
the Floor Broker or OSF shall still be permitted to bill the Market-
Maker for these brokerage fees in the regular, non-automated fashion.
(xi) In the event that any of the deadlines referenced in this Rule
fall on a non-business day, the deadline shall advance to the next
business day.
(b) Each Clearing Member shall be authorized under this Rule (i) to
deduct from a Market-Maker's account at that Clearing Member amounts
drafted by the Exchange from the Clearing Member's account at the
Clearing Corporation pursuant to this Rule for brokerage fees billed to
that Market-Maker and (ii) to make deductions from the Market-Maker's
account at the Clearing Member and distributions to Floor Brokers and
OSFs of the deducted amounts in accordance with subparagraph (a)(ix)(B)
of this Rule.
(c) The Clearing Corporation shall have no liability to members or
associated persons in connection with the billing process under this
Rule.
(d) To the extent that there is any inconsistency between the
provisions of this Rule and the provisions of Rule 6.76, the provisions
of this Rule shall govern with respect to the bills processed pursuant
to the billing process under this Rule.
Order Service Firms
RULE 6.77. (a) An order service firm is a regular member
organization that is registered with the Exchange for the purpose of
taking orders for the purchase or sale of stocks or commodity futures
contracts (and options thereon) from market-makers on the floor of the
Exchange and forwarding such orders for execution. An applicant for
registration as an order service firm shall file [its] an application
[in writing] with the Membership Department [of] in a form and manner
prescribed by the Exchange. Applications shall be reviewed by the
Membership Committee, which shall consider an applicant's financial
condition, regulatory history, and such other factors as the Membership
Committee deems appropriate. After reviewing the
[[Page 63084]]
application, the Membership Committee shall either approve or
disapprove the applicant's registration as an order service firm.
Before registration, the Membership Department, [upon direction of] if
directed by the Membership Committee, shall post the names of the
applicant and its nominee(s) on the floor of the Exchange for at least
three business days.
(b) An order service firm shall make available to market-maker
customers upon request a statement of financial condition as disclosed
by its most recent balance sheet, which shall be prepared no later than
the tenth business day following each calendar month-end.
(c) A [clearing member] Clearing Member need not register as an
order service firm in order to take orders for the purchase or sale of
stocks or commodity futures contracts (and options thereon) from
market-makers for which it has a currently outstanding Letter of
Guarantee.
(d) An order service firm that takes orders for the purchase or
sale of commodity futures contracts (and options thereon) must comply
with the Commodity Exchange Act (``CEA'') and the rules and regulations
promulgated thereunder. Such a firm shall keep the Department of
Financial and Sales Practice Compliance apprised of its registration
status under the CEA on an ongoing basis, including any financial
reporting or capital requirements.
Letters of Guarantee Required of Order Service Firms
RULE 6.78. (a) Prior to accepting any orders from market-makers on
the floor of the Exchange, an order service firm must have on file with
the [exchange] Exchange and in effect an Order Service Firm Letter of
Guarantee issued for such service firm by a member of The Options
Clearing Corporation.
(b) The Order Service Firm Letter of Guarantee shall be in a form
prescribed by [acceptable to] the Exchange and shall provide that the
issuing [clearing member] Clearing Member accepts financial
responsibility for all orders handled by the order service firm on the
floor of the Exchange and for all financial obligations of the order
service firm to the Exchange.
(c) An Order Service Firm Letter of Guarantee filed with the
Exchange shall remain in effect until a written notice of revocation
has been filed with the [Exchange and posted on the Exchange bulletin
board. If such written notice has not been posted for] Membership
Department. If such a written notice of revocation is not filed with
the Membership Department at least one hour prior to the opening of
trading on a particular business day, such revocation shall not become
effective until the close of trading on such [date] day. Upon the
request of the Clearing Member that files such a written notice of
revocation, the Exchange shall post notice of the revocation on the
Exchange Bulletin Board. A revocation shall in no way relieve a
[clearing member] Clearing Member of responsibility for transactions
guaranteed prior to the effective date of such revocation.
(d) No [clearing member] Clearing Member shall be permitted to
guarantee more than three (3) order service firms without the prior
written approval of the Department of Financial and Sales Practice
Compliance (the ``Department''). In considering a request to guarantee
more than three (3) such firms, the Department shall consider the
[clearing member's] Clearing Member's level of excess net capital,
additional financial resources, and such other factors as the
Department deems appropriate.
* * * * *
CHAPTER VIII--Market-Makers, Trading Crowds and Modified Trading
Systems
* * * * *
Letters of Guarantee
RULE 8.5. (a) Required of Each Market-Maker. No Market-Maker shall
make any transaction on the floor of the Exchange unless [a Letter of
Guarantee has been issued for such member by a Clearing Member and
filed with the Exchange, and unless such letter has not been revoked
pursuant to paragraph (c) of this Rule] there is in effect a Letter of
Guarantee that has been issued for such Market-Maker by a Clearing
Member and filed with the Exchange. [A member may file more than one
such Letter with the Exchange; provided, however, that a Letter of
Guarantee with an earlier effective date will afford the Clearing
Member issuing such letter a priority over each subsequent issuer of a
Letter of Guarantee for claims made pursuant to Rule 3.15 against the
proceeds from the sale of a membership by the person covered by such
Letter of Guarante.] If a Market-Maker desires to clear his or her
transactions through more than one Clearing Member, a Letter of
Guarantee is required to be issued and filed with the Exchange by each
such Clearing Member to cover Exchange transactions executed by the
Market-Maker through that Clearing Member. A Market-Maker may not
execute Exchange transactions through a Clearing Member unless there is
in effect a Letter of Guarantee that has been issued for such Market-
Maker by the Clearing Member and filed with the Exchange. The Exchange
shall notify each issuer of a Letter of Guarantee of other outstanding
Letters of Guarantee [which] that have been issued to the same Market-
Maker [and shall notify each Clearing Corporation that has approved a
Letter of Guarantee for a Market-Maker of the issuance and revocation,
if applicable, of all other Letters of Guarantee issued to that Market-
Maker in respect of transactions subject to the rules of any other
Clearing Corporation].
(b) Terms of Letter of Guarantee. A Letter of Guarantee shall be in
a form prescribed by the Exchange and shall provide that the issuing
Clearing Member accepts financial responsibility for [all] Exchange
transactions made by the guaranteed [member] Market-Maker when
executing such transactions through the issuing Clearing Member.
(c) Revocation of Letter of Guarantee. A Letter of Guarantee filed
with the Exchange shall remain in effect until a written notice of
revocation has been filed with the [Exchange and posted on the Exchange
bulletin board. If such written notice has not been posted for]
Membership Department. If such a written notice of revocation is not
filed with the Membership Department at least one hour prior to the
opening of trading on a particular business day, such revocation shall
not become effective until the close of trading on such day. Upon the
request of the Clearing Member that files such a written notice of
revocation, the Exchange shall post notice of the revocation on the
Exchange Bulletin Board. A revocation shall in no way relieve a
Clearing Member of responsibility for transactions guaranteed prior to
the effective date of such revocation.
. . . Interpretations and Policies:
.01 Market-Makers entering into Government securities options
transactions must have a separate Letter of Guarantee issued by a Debt
Securities Clearing Member.
.02 Each Market-Maker must file with the Exchange one or more
Letters of Guarantee for transactions cleared by The Options Clearing
Corporation.
.03 A Market-Maker engaging in transactions subject to the rules
in Chapter XXX may submit one or more Letters of Guarantee in respect
of the securities to be traded by such Market-Maker; provided, that any
such Letter of Guarantee shall specify the types of security (e.g.,
stocks or warrants, UIT interests) for which the Clearing Member
accepts responsibility.
[[Page 63085]]
.04 Only those Letters of Guarantee that are required to be
deposited with a Clearing Corporation will be submitted to such
Clearing Corporation for its approval. The Exchange shall notify each
Clearing Corporation that has approved a Letter of Guarantee for a
Market-Maker of the issuance and revocation, if applicable, of all
other Letters of Guarantee issued to that Market-Maker in respect of
transactions subject to the rules of any other Clearing Corporation.
* * * * *
Rule 8.9--Securities Accounts and Orders of Market-Makers
* * * * *
. . . Interpretations and Policies:
* * * * *
.08 Each participant in a joint account shall be jointly and
severally liable for any losses which may be incurred by the joint
account; however, in the case where a participant in a joint account is
a nominee of a member organization, or is an individual who has
registered his or her membership for a member organization, and the
participant is not acting as an independent Market-Maker pursuant to
Rule 3.8(f), the member organization and not the participant shall be
so liable.
* * * * *
CHAPTER IX--Doing Business With the Public
* * * * *
Exchange Approval
RULE 9.1. An individual regular member [or any special member] may
not transact business with the public. A regular member organization
may transact business with the public after an application, submitted
on a form prescribed by the Exchange, has been approved by the
Membership Committee. Approval to transact business with the public
shall be based on a member organization's meeting the general
requirements set forth in this Chapter and the net capital requirements
set forth in Chapter XIII of the Rules, and such approval may be
withdrawn if any of the requirements cease to be met.
* * * * *
Registration and Termination of Representatives
RULE 9.3. (a) Registration. No member organization shall be
approved to transact business with the public until those persons
associated with it who are designated as Representatives have been
approved by and registered with the Exchange. Persons who perform
duties for the member organization which are customarily performed by
sales representatives, solicitors, customers' men or branch office
managers shall be designated as Representatives. In connection with
their registration, Representatives shall file an application on a form
prescribed by the Exchange, shall successfully complete a training
course and an examination for the purpose of demonstrating an adequate
knowledge of the securities business, and shall sign an agreement to
abide by the Constitution and Rules of the Exchange and the Rules of
the Clearing Corporation; provided, however, that Representatives of
member organizations that are members of another national securities
exchange or association which has standards of approval acceptable to
the Exchange may be deemed to be approved by and registered with such
other exchange or association. Member organizations whose
Representatives are deemed registered pursuant to the last clause of
the preceding sentence shall inform their Representatives of their
obligation to adhere to the Constitution and Rules of the Exchange and
the Rules of the Clearing Corporation.
(b) Termination--Filing of U-5's. The discharge or termination of
employment of any registered person, together with the reasons
therefor, shall be reported by a member organization immediately
following the date of termination, but in no event later than thirty
(30) days following termination, to the Exchange's Department of
Financial and Sale Practice Compliance on a Uniform Termination Notice
for Securities Industry Registration (Form U-5). A copy of said
termination notice shall be provided concurrently to the person whose
association has been terminated.
(c) Termination--Filing of amended U-5's. The member organization
shall report to the Exchange, by means of an amendment to the Form U-5
filed pursuant to paragraph (b) above, in the event that the member
organization learns of facts or circumstances causing any information
set forth in the notice to become inaccurate or incomplete. Such
amendment shall be filed with the Exchange's Department of Financial
and Sales Practice Compliance and provided concurrently to the person
whose association has been terminated no later than thirty (30) days
after the member organization learns of the facts or circumstances
giving rise to the amendment.
. . . Interpretations and Policies:
.01 The application prescribed by the Exchange pursuant to
paragraph (a) of this Rule is the Uniform Application for Securities
Industry Registration or Transfer (Form U-4). Any person required to
complete Form U-4 shall promptly file any required amendments to Form
U-4.
.0[1]2 Any filing or submission requirement under this Rule shall
be deemed to be satisfied if such filing or submission is made with the
North American Securities Administrators Association/National
Association of Securities Dealers, Inc. Central Registration Depository
(CRD) within the applicable time period set forth in [paragraph (b) or
(c) of] this Rule.
* * * * *
CHAPTER X--Closing Transactions
* * * * *
Contracts of Suspended Parties
RULE 10.11. When a member or member organization is suspended
pursuant to Chapter XVI of these Rules, members and organizations
having contracts with the suspended member or member organization for
the purchase, sale or loan of securities shall, without unnecessary
delay, proceed to close such contracts on the Exchange or in the best
available market, except insofar as the rules of a Clearing Corporation
are applicable and provide the method of closing; provided, however,
that upon any such suspension, the Board of Directors may, in its
discretion, suspend the mandatory closeout provisions of this Rule and
may, in its discretion, reinstate such provisions at such time as it
may determine. Should such a contract not be closed when required to be
closed by this Rule, the price of settlement for the purpose of Rule
3.15 shall be determined pursuant to the claims resolution procedures
provided for by that Rule, with [fixed by the Board, having] due regard
for the price current at the time
* * * * *
CHAPTER XV--Records, Reports and Audits
* * * * *
RULE 15.1--Maintenance, Retention and Furnishing of Books, Records
and Other Information
* * * * *
. . . Interpretations and Policies:
.01 The following Rules contain specific requirements with regard
to the maintenance and retention of books, records and other
information: Rules 3.4 [3.5], 3.6 [3.7], 8.9, 9.6, 9.7, 9.8, 9.10,
[[Page 63086]]
9.21, 9.23, 11.2, 12.12 and Chapter XV. In addition, the following
Rules contain specific requirements with regard to the furnishing of
information to the Exchange: Rules [3.6], 3.7 [3.8], 3.9, [3.14, 3.15,
3.16], 3.17, 3.18, 3.20, 3.21, 3.23, 3.25, 4.9, 4.13, 6.49, 6.51, 6.56,
6.59, 6.71, 6.72, 7.2, 7.3, 7.6, 8.2, 8.3, 8.5, 8.10, 8.11, 9.1, 9.2,
9.3, 12.11, 13.4, 14.2 and 19.2. The foregoing list is not intended to
be exhaustive and members must comply with all applicable recordkeeping
and reporting requirements whether or not listed above.
* * * * *
CHAPTER XVIII--Arbitration
* * * * *
RULE 18.2--Procedures in Member Controversies
* * * * *
. . . Interpretations and Policies:
.01 In any arbitration concerning the alleged failure to honor a
trade, each party to the arbitration shall promptly provide copies of
all documents filed or received in the arbitration by that party to the
Clearing Member(s) that guaranteed that party's Exchange transactions
when the alleged trade took place.
* * * * *
CHAPTER XXIVA--Flexible Exchange Options
* * * * *
RULE 24A.15.--Letter of Guarantee or Authorization
* * * * *
(a) No Market-Maker shall effect any transaction in FLEX Options
unless one or more Letter(s) of Guarantee has been issued by a Clearing
Member and filed with the Exchange pursuant to Rule 8.5(a) accepting
financial responsibility for all FLEX transactions made by the Market-
Maker and such letter has not been revoked under Rule 8.5(c). Upon
approval by The Options Clearing Corporation and filing with the
Exchange, an existing Letter of Guarantee may be amended specifically
to include FLEX Option transactions. [In determining priority for
claims made pursuant to Rules 3.15 and 8.5, the filing of an amendment
to an existing Letter of Guarantee to authorize a member to engage in
FLEX transactions shall not change the effective date of the existing
Letter.]
(b) No Floor Broker shall act as such in respect of FLEX Option
contracts unless [one or more Letters] a Letter of Authorization has
been issued by a Clearing Member and filed with the Exchange under Rule
6.72(a) specifically accepting responsibility for the clearance of FLEX
Option transactions of the Floor Broker and such letter has not been
revoked under Rule 6.72(c). Upon approval by the Clearing Corporation
and filing with the Exchange, an existing Letter of Authorization may
be amended to include FLEX Option transactions. [In determining
priority or claims made pursuant to Rules 3.15 and 6.72, filing of an
amendment to a Letter of Authorization shall not change the effective
date of an existing Letter of Authorization.]
[This rule supplements Exchange Rule 8.5.]
* * * * *
CHAPTER XXVI--Market Baskets
* * * * *
RULE 26.11.--Market-Makers
* * * * *
(c) Letter of Guarantee. No Market-Maker shall make any transaction
on the floor of the Exchange in market basket contracts unless one or
more Letters of Guarantee has been issued by a Clearing Member under
Rule 8.5(a) in which the issuing Clearing Member specifically accepts
financial responsibility for all market basket transactions made by the
Market-Maker and such Letter has not been revoked pursuant to Rule
8.5(c). Upon approval by the Clearing Corporation and filing with the
Exchange, an existing Letter of Guarantee may be amended to include
market basket transactions. [For purposes of determining the priority
of Clearing Members for claims made pursuant to Rules 3.15 and 8.5, the
effective date of an existing Letter of Guarantee shall not be deemed
modified by the filing of an amendment authorizing a member to engage
in market basket transactions.]
* * * * *
RULE 26.13.--Floor Broker Financial Requirements
* * * * *
(b) Letter of Authorization. No Floor Broker shall act as such in
respect of market basket contracts unless [one or more Letters] a
Letter of Authorization has been issued by a Clearing Member under Rule
6.72(a) (and not revoked under Rule 6.72(c)) in which the issuing
Clearing Member specifically accepts responsibility for the clearance
of market basket transactions of the Floor Broker when the name of the
Clearing Member is given up. Upon approval by the Clearing Corporation
and filing with the Exchange, an existing Letter of Authorization may
be amended to include market basket transactions. [For purposes of
determining the priority of Clearing Members for claims made pursuant
to Rues 3.15 and 6.72, the effective date of an existing Letter of
Authorization shall not be deemed modified by the filing of an
amendment authorizing a member to engage in market basket
transactions.]
* * * * *
CHAPTER XXX--Stock, Warrant and Other Rules
* * * * *
RULE 30.74.--Clearing of System Transactions
* * * * *
(e) Whenever a Clearing Corporation to which a System trade has
been reported excludes such System trade from the clearance procedures
conducted by such Clearing Corporation, either because such Clearing
Corporation ceases to act (either with respect to transactions
generally or as to a particular transaction) for a member or member
organization, or because of the insolvency of such member or member
organization, the Exchange may, but shall not be obligated to, assume
and honor any one or more or all of such excluded System trades for the
account of and on behalf of the member or member organization for which
the Clearing Corporation ceased to act or which is insolvent and the
Exchange may take such action in the market to close out or offset its
position as it may deem appropriate. In any such case, the Exchange
shall have a claim against such member or member organization in the
amount of the loss incurred by the Exchange as a result of such
assumption of such excluded System trades. The Exchange may assert such
claim against such member or member organization in any appropriate
forum [and, without limiting the generality of the foregoing, in
connection with the transfer of any membership by such member, or by
any member who is associated with such member organization, such claim
shall be entitled to priority in payment as a sum due the Exchange
under the provisions of Rule 3.15.]
* * * * *
REGULATORY CIRCULAR RG 98-148 99-
Date: ________, 1999 [December 29, 1998]
To: Members and Applicants for Membership
From: Membership Department
Re: Membership Application and Other Membership Fees
[Exchange Rules 2.22 and 3.9 authorize the Board of Directors to
impose fees and the Membership Department to investigate all applicants
[[Page 63087]]
for membership, respectively. All applicants for CBOE membership,
regardless of their Designated Examining Authority or standing at other
self-regulatory organizations, are investigated and assessed the
appropriate fees. This includes all persons associated within applicant
member organizations, i.e., general and limited partners, executive
officers, principal shareholders, and LLC members and managers.
Moreover, investigations are conducted and the fees for such associated
persons are assessed each time a new person of such status becomes
associated with the firm, as well as at the time an initial application
is filed.
In connection with this process, member organizations are reminded
of their obligation under CBOE Rule 3.5(b) to file with the Exchange
and keep current a list and descriptive identification of those persons
associated with the member organization who are its executive officers,
directors, principal shareholders, general and limited partners, and
LLC members and managers. Member organizations who have not fulfilled
this obligation should do so by filing such a list with the Membership
Department.
For information purposes,] The following is a list of the
Exchange's membership application fees and other membership fees,
together with a brief explanation of each fee:
List of Fees
Individual/Nominee/CBOT Exerciser/Lessee/Lessor.......... $2,000
Non-member Customer Business............................. $500
Order Service Firm....................................... $1,500
General Partner.......................................... $250
Executive Officer........................................ $250
LLC Manager.............................................. $250
Principal Shareholder.................................... $250
Limited Partner.......................................... $250
LLC Member............................................... $250
Corporation/Partnership/LLC.............................. $250
Renewal/Change of Status................................. $100
Orientation.............................................. $200
Lease Fee................................................ $500
Amendments to [Partnership] Bylaws/Partnership Agreement/
Operating
Agreement................................................ $100
Inactive Nominee Status Change
Submission before 4:00 p.m. on date prior to effective $40
date....................................................
Submission after 4:00 p.m. on date prior to effective $75
date or before 8:00 a.m. on effective date..............
Submission after 8:00 a.m. on effective date............. $150
Fingerprint Processing and Photograph Fee.................... $35
Transfer of Membership into Trust............................ $500
Inactive Nominee Status Quarterly Maintenance Fee............ $600
Applicant, Member, or Associated Person Subject to a $2,500
Statutory Disqualification..................................
Change in Status that, if Approved, Would Require Amended or $1,500
Additional Rule 19h-1(c) Filing.............................
ALL FEES ARE NON-REFUNDABLE AND MUST ACCOMPANY APPLICATIONS
Individual/Nominee/CBOT Exerciser/Lessee/Lessor--This fee is
payable by each new individual applicant for membership on the
Exchange.
Non-Member Customer Business--This fee is payable by applicant
firms that plan to conduct a public customer business.
Order Service Firm--This fee is payable by applicant firms that
plan to conduct an order service business pursuant to CBOE Rule 6.77.
General Partner--This fee is payable by each General Partner of a
member firm applicant and each additional General partner who is added
to such firm. General Partners must also be fingerprinted and incur the
fingerprint processing fee.
Executive Officer--This fee is payable by each Executive Officer of
a member firm applicant and each additional Executive Office who is
added to such firm. Executive Officers must also be fingerprinted and
incur the fingerprint processing fee.
LLC Manager--This fee is payable by each LLC Manager of an
applicant LLC and each additional LLC Manager who is added to the LLC.
LLC Managers must also be fingerprinted and incur the fingerprint
processing fee.
Principal Shareholder--This fee is payable by each Shareholder that
directly owns 5% or more of a class of a voting security of an
applicant corporation and each additional such Shareholder who is added
to the corporation.
Limited Partner--This fee is payable by each Limited Partner of an
applicant partnership that has the right to receive upon dissolution,
or has contributed, 5% or more of the partnership's capital and each
additional such Limited Partner who is added to the partnership.
LLC Member--This fee is payable by each LLC Member of an applicant
LLC that has the right to receive upon dissolution, or has contributed,
5% or more of the LLC's capital and each additional such LLC Member who
is added to the LLC. LLC Members must also be fingerprinted and incur
the fingerprint processing fee.
Corporation/Partnership/LLC--This fee is payable by each new firm
applicant for membership on the Exchange. If a member organization
changes its legal structure (e.g., from partnership to corporation or
the reverse, from partnership to LLC or the reverse, or from
corporation to LLC or the reverse), the firm is considered a new entity
and assessed all application fees.
Renewal/Change of Status--This fee is payable by an existing
individual member (including sole proprietors, nominees, CBOT
exercisers, lessees, and lessors) desiring to change membership status
or by a former individual member who [is reapplying] reapplies for
membership within 6 months of his/her membership termination date.
Orientation--This fee (for [an Orientation Seminar and Examination]
the New Member Orientation Program and Floor Member Qualification Exam)
is payable by each applicant seeking membership as a [market maker or
floor broker] Market-Maker or Floor Broker.
Lease Fee--The lease fee must accompany every new lease agreement
filed with the Exchange.
[[Page 63088]]
Bylaw, Partnership Agreement, and Operating Agreement Amendments--
This fee is payable each time a [partnership agreement is amended.
Other applicable fees are also assessed (e.g. new General or Limited
Partner fees)] member organization's bylaws, partnership agreement, or
operating agreement is amended.
Inactive Nominee Status Change Fee--This fee is payable whenever an
inactive nominee moves to active status. The amount of this fee varies
in accordance with when the Membership Department receives notice of
the status change via the submission of a Notification of Change in
Nominee Status Form. If the Notification Form is submitted before 4:00
p.m. on the date prior to the effective date of the status change, the
fee is $40. If the Notification From is submitted after 4:00 p.m. on
the date prior to the effective date of the status change or before
8:00 a.m. on the effective date of the status change, the fee is $75.
If the Notification Form is submitted after 8:00 a.m. on the effective
date of the status change, the fee is $150. No fee shall apply to moves
from active to inactive status.
Fingerprint Processing Fee--This fee is payable by all individual,
nominee, CBOT exerciser, lessee, and lessor applicants and every
General Partner, Executive Officer, LLC Member, and LLC Manager of
member and applicant firms.
Transfer of Membership into Trust--This fee is payable by every
individual member applying to transfer his or her membership into trust
pursuant to CBOE Rule 3.25.
Inactive Nominee Status Quarterly Maintenance Fee--This fee is
payable quarterly by a member firm for each inactive nominee status
that the firm wishes to maintain. (E.g., a member firm desiring the
ability to have 3 slots within which to designate inactive nominees
would pay this fee at the beginning of each quarter for each of the 3
slots.)
Applicant, Member, or Associated Person Subject to a Statutory
Disqualification--This fee is payable whenever a person or entity is
subject to a statutory disqualification under the Securities Exchange
Act of 1934 and: (i) is an applicant for Exchange membership, (ii) is
seeking to be an associated person of an Exchange member (except where
the Exchange is merely asked to concur in an SEC Rule 19h-1 filing by
another self regulatory organization), or (iii) is an existing Exchange
member or associated person who makes an application in accordance with
Rule 3.18(b) or with respect to whom a proceeding is initiated pursuant
to Rule 3.18 [3.4(f), or (iv) is an existing Exchange member or
associated person who does not make an application in accordance with
Rule 3.4(f) and contests a proceeding pursuant to Rule 3.4(e)]. This
fee is in addition to any other membership fees that might be
applicable.
Change in Status that, if Approved, Would Require Amended or
Additional SEC Rule 19h-1(c) Filing--This fee is payable whenever a
person or entity on whose behalf the Exchange has filed a Rule 19h-1(c)
filing that has been approved by the SEC applies for a change in status
that will require the Exchange to file an amended or additional Rule
19h-1(c) filing if the Exchange approves the requested change in
status. This fee is in addition to any other membership fees that might
be applicable.
Any questions regarding this Regulatory Circular may be directed to
Raedell Pancake, Director, Membership Department, at (312) 786-7460.
(Regulatory Circulars RG90-10, RG91-48, RG92-37, RG95-47, RG95-58,
[and] RG96-03, and RG98-148 Revised).
* * * * *
NYSE Options Program
Permit Lease Pool Procedures
* * * * *
[8.h. No lease of a Permit in the lease pool will become effective
until there has been deposited with the Membership Department of the
Exchange a Letter of Guarantee from a Clearing Member in the amount
equal to the last sale price of a Permit, except that during the first
year of the Permits (during which no Permits may be bought or sold) the
amount shall be $50,000.]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Introduction
The purpose of this proposed rule change is to update the
Exchange's rules relating to membership. The proposed rule amendments
codify various procedures that have been implemented over time pursuant
to the Exchange's current membership rules. Additionally, the proposed
rule amendments clarify, restate, and reorganize certain of the
Exchange's membership rules to make it easier for the Exchange's
membership to reference and understand those provisions. Finally, the
proposed rule amendments incorporate into the Exchange's membership
rules various proposed improvements and enhancements, which are more
fully described below.
This proposed rule change is the product of a comprehensive review
and evaluation of the Exchange's current membership rules. This
thorough and detailed review and evaluation was conducted by Exchange
staff, the Exchange's Membership Committee, Clearing Member
representatives, and the Exchange's Floor Directors Committee and
involved numerous meetings and discussions by and among these groups
over several years.
Set forth below is a summary of the substantive amendments proposed
by this rule change.
Rule 1.1--Definitions
The definition of lessor in CBOE Rule 1.1(ff) is proposed to be
amended to clarify that a member organization that is a lessor of an
Exchange membership may transact business with the public provided the
organization is approved to do so pursuant to CBOE Rule 9.1.
Specifically, the second sentence of CBOE Rule 1.1(ff) is proposed to
be deleted because the sentence is ambiguous and could be read to imply
that a lessor member organization is not permitted to transact business
with the public. The definition of nominee in CBOE Rule 1.1(pp) is also
proposed to be amended (i) to clarify that under the amended rules not
all types of nominees are required to have an authorized floor function
(i.e., as is more fully set forth in proposed CBOE Rules 3.8(a)(iii)
and 3.8(b)(iii), nominees of member organizations approved solely to
transact business with the public and of lessor member organizations
are not required to have an authorized floor function) and (ii) to
eliminate a
[[Page 63089]]
provision which provides that all nominees shall be deemed to be
Exchange members since proposed Rule 3.8(b) provides that a nominee of
a member organization approved to act solely as a lessor shall be
deemed an associated person of the organization and not an individual
member.
Rule 3.1--Public Securities Business
CBOE Rule 3.1 is proposed to be amended to clarify when the Rule is
referring to an individual member, a member organization, or a member.
(As is set forth in Section 1.1(b) of the CBOE Constitution, the term
``member'' means an individual member or a member organization.) CBOE
Rule 3.1 is also proposed to be amended to delete the provision that
requires compliance with Section 11(a) of the Act \5\ because
compliance with the Act is required by CBOE Rule 4.2 and because CBOE
Rule 3.1 is intended instead to set forth permissible membership
capacities for the purpose of satisfying the requirement of Section 2.2
of the CBOE Constitution and Rule 3.1(a) that every member shall have
as the principal purpose of its membership the conduct of a public
securities business. Additionally, CBOE Rule 3.1 is proposed to be
amended to separately refer to the membership capacity of a nominee and
the membership capacity of an individual who has registered his or her
membership for a member organization.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78k(a).
---------------------------------------------------------------------------
Rule 3.2--Qualifications and Membership Statuses of Individual Members
CBOE Rule 3.2 is proposed to be amended to clarify that the
requirement in the Rule that an individual member is required to be 21
years of age applies to every individual member and not solely to
individual members who own memberships. CBOE Rule 3.2 is also proposed
to be amended to set forth in the Rule (i) all of the individual
membership statuses under the Exchange's rules (including those that
are approved by the Membership Committee and those that are approved by
Exchange bodies other than the Membership Committee) and (ii) those
individual membership capacities for which one is required to have an
authorized floor function. Additionally, proposed CBOE Rule 3.2(c)
codifies in the Exchange's rules the definition of an authorized floor
function (i.e., an individual member is deemed to have an authorized
floor function if the member is approved by the Membership Committee to
act as a Market-Maker and/or a Floor Broker).
Rule 3.3--Qualifications and Membership Statuses of Member
Organizations
Proposed CBOE Rule 3.3 is similar in structure to proposed CBOE
Rule 3.2 and sets forth all of the membership organization membership
statuses under the Exchange's rules (including those that are approved
by the Membership Committee and those that are approved by Exchange
bodies other than the Membership Committee). Consistent with long
standing Exchange policy, CBOE Rule 3.3 also clarifies that a member
organization that is a Clearing Member or an order service firm is
required to possess at least one membership for which the organization
is not a lessor. In addition, CBOE Rule 3.3 clarifies that a member
organization that desires to become a different type of business entity
must apply for membership in the name of the new entity.
Rule 3.4--Qualifications of Foreign Member Organizations
Currently, CBOE Rule 3.3 provides that an organization not
organized under United States law may not become a member organization,
unless the organization is organized under other laws approved by the
Exchange's Board of Directors. Due to the ever-increasingly global
nature of the securities markets, the Exchange has determined to amend
its rules to permit foreign entities to become members of the Exchange,
provided that such entities satisfy a number of requirements that are
designed to eliminate potential hindrances the Exchange might encounter
in regulating a foreign entity were such requirements not in place.
These requirements are set forth in proposed CBOE Rule 3.4 and include,
among others, the requirements that the organization must (i) maintain
in English and at a location in the United States the books and records
of the organization that relate to its business on the Exchange, (ii)
maintain its financial records in accordance with United States
accounting standards or foreign accounting standards that are found by
the Exchange to be comparable to United States accounting standards,
(iii) waive any secrecy laws in the domiciliary jurisdiction of the
organization, and (iv) submit to the jurisdiction of the United States
federal courts and the Illinois courts.
Rule 3.5--Denial of and Conditions to Membership and Association
Proposed CBOE Rule 3.5 (which is a revised version of current CBOE
Rule 3.4) clarifies which criteria for denial or conditioning
membership or association with a member are applicable only to broker-
dealer applicants and revises one of the current grounds for denial or
conditioning approval of a broker-dealer applicant. Currently, the
Membership Committee may deny or condition the approval of a broker-
dealer applicant if the applicant has a negative net worth. Under
proposed CBOE Rule 3.5(c)(i), this ground is revised to provide that
the Membership Committee may deny or condition the approval of a
broker-dealer applicant if the applicant is an individual and has net
worth (excluding personal assets) below $25,000 or if the applicant is
an organization and has net worth (excluding personal assets) below
$50,000. The Exchange believes that this somewhat higher standard is
appropriate given the financial resources typically now required to
operate as an Exchange member. In addition, any individual applicant
who fails to satisfy this standard could still apply to become a non-
broker-dealer nominee of a member organization and not be subject to
this standard.
Proposed CBOE Rule 3.5 also clarifies that it is the Exchange's
intention not to use as a ground for denial or conditioning approval of
an applicant failure by the applicant to pay debts that have been
discharged in bankruptcy. However, in the event an applicant has
engaged in fraud in connection with a bankruptcy proceeding (such as
fraudulent conveyances) or some other type of violation of just and
equitable principles of trade, this clarification is not intended to
limit the Exchange from considering this activity in determining
whether to deny or condition approval of the applicant. A new provision
is also proposed to be included in proposed CBOE Rule 3.5 which makes
clear that any decision made by the Membership Committee to deny or
condition approval of an applicant must be consistent with both the
provisions of proposed CBOE Rule 3.5 and the provisions of the Act.
Additionally, certain provisions of current CBOE Rule 3.4 are not
included in proposed CBOE Rule 3.5 and instead are restated in other
rules.
Rule 3.6--Persons Associated With Member Organizations
Proposed CBOE Rule 3.6 clarifies that the associated persons of a
member organization which are required to be disclosed to the Exchange
and approved
[[Page 63090]]
by the Membership Committee include those associated persons that are
required to be disclosed on the organization's Form BD as direct owners
or executive officers (or, if the organization is a non-broker-dealer
lessor member organization, those associated persons that would be
required to be disclosed on Form BD in these capacities in the event
the organization was a broker-dealer). In addition, a prior reference
to the completion of Form U-4 has been deleted, and CBOE Rule 9.3 has
been amended to clarify which associated persons are required to
complete Form U-4 (i.e., persons who perform duties for member
organizations approved to transact business with the public which are
customarily performed by sales representatives, solicitors, customers'
men, or branch office managers). Notwithstanding the foregoing, the
Exchange may still require other applicants to complete Form U-4 during
the application process solely as an information gathering tool.
Rule 3.7--Certain Documents Required of Members, Applicants, and
Associated Persons
Proposed CBOE Rule 3.7 sets forth those documents which members are
required to submit to the Membership Department. Most of the provisions
of proposed CBOE Rule 3.7 are restatements of current requirements set
forth in current CBOE Rule 3.6. Additionally, because current CBOE Rule
3.6 was last amended prior to when the Exchange amended its Rules to
permit limited liability companies to become Exchange members, a
provision is proposed to be included in proposed CBOE Rule 3.7.01 which
specifies the documents that the Exchange currently requires applicants
and members that are limited liability companies to file with the
Membership Department. Proposed CBOE Rule 3.7 also includes provisions
which refer to existing requirements under the Act (i.e., the
requirements under Section 17(f) of the Act \6\ respecting
fingerprinting and the requirement under Section 15 of the Act \7\ that
broker-dealers complete and keep current Form BD).
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78q(f).
\7\ 15 U.S.C. 78o.
---------------------------------------------------------------------------
Rule 3.8--Nominees and Members Who Register Their Memberships for
Member Organizations
CBOE Rule 3.8 is proposed to be amended to restate the current
requirements that are applicable to nominees and members who register
their memberships for member organizations. For example, CBOE Rule
3.8(a) sets forth current requirements that are applicable to the
designation of a nominee by a member organization that will not be
acting as a lessor, and Rule 3.8(c) sets forth current requirements
that are applicable to registering one's membership for a member
organization. CBOE Rule 3.8 is also proposed to be amended to
incorporate the following substantive changes.
Proposed CBOE Rule 3.8(b) requires each lessor member organization
to designate a single nominee to represent the organization in all
matters relating to the Exchange with respect to all of the memberships
for which the organization is a lessor. This individual will be
required to satisfy all of the qualification requirements for
membership (other than the requirements which are not applicable to
lessors or which are applicable solely to members who will have an
authorized floor function), except that the nominee will be considered
an associated person of the lessor member organization and not an
individual member by virtue of being approved to act as a nominee in
this capacity. The Exchange currently requires lessor member
organizations to designate a representative to represent the
organization with respect to the memberships for which it is a lessor,
and proposed CBOE Rule 3.8(b) formalizes the process for the
designation and approval of these individuals and clarifies that they
are subject to the Exchange rules that are applicable to nominees
generally (except those rules that are not applicable to lessors or
which are applicable solely to members who will have an authorized
floor function).
Proposed CBOE Rule 3.8(d) clarifies that a nominee shall not,
solely by virtue of being a nominee of a member organization, have any
personal liability to the Exchange or to any other member for Exchange
transactions and other securities transactions made by the nominee on
behalf of the member organization. Proposed CBOE Rule 3.8.01 also makes
clear that nothing in CBOE Rule 3.8(d) is intended to define or limit
(i) any obligations between a nominee of a member organization, or an
individual who has registered his or her membership for a member
organization, and the member organization itself; (ii) any
responsibility such a person may have for obligations of the member
organization by virtue of a contractual obligation or ownership
relationship to the organization beyond merely being a nominee or
individual who has registered his or her membership for the
organization; or (iii) the ability of the Exchange to sanction or take
other remedial action against such a person pursuant to other Exchange
rules for rule violations or other activity for which remedial measures
may be imposed.
Proposed CBOE Rule 3.8(e)(i) provides that each nominee of a member
organization and each individual who has registered his or her
membership for a member organization is required to be materially
involved in the daily operation of the Exchange business activities of
the member organization. This provision is intended to eliminate the
potential ability under the Exchange's current rules for an
organization to qualify for membership by associating with an
individual who is designated as that organization's nominee or who
registers his or her membership for the organization but who has little
or no involvement with the organization's Exchange business activities.
The Exchange is proposing to prohibit the potential ability to have
such an arrangement since such arrangements dilute the value of the
membership rights of other Exchange members and result in a situation
in which the person designated to represent the applicable member
organization in all matters relating to the Exchange is not materially
involved in the organization's Exchange business activities.
Rule 3.9--Application Procedures and Approval or Disapproval
CBOE Rule 3.9 is proposed to be amended to restate the Exchange's
current membership application procedures.
For example, proposed CBOE Rule 3.9(g) restates the current
provision that any individual membership applicant applying to have an
authorized floor function is required to have attended the Exchange's
New Member Orientation Program and to have passed the Exchange's Floor
Member Qualification Exam. This provision is currently set forth in
CBOE Rule 3.9(c)(2) and is proposed to be restated and moved to
proposed CBOE Rule 3.9(g). Proposed CBOE Rule 3.9(g) also sets forth
the procedural requirements that are related to this provision (such as
the requirement that a person must score 75% or better on the Floor
Member Qualification Exam in order to pass the Exam) which were
previously approved by the Commission but which are not currently set
forth in CBOE Rule
[[Page 63091]]
3.9.\8\ Additionally, the provisions currently set forth in Rule 3.5(b)
which address when an applicant who fails the Floor Member
Qualification Exam may re-take the Exam are proposed to be deleted from
Rule 3.5(b) and to be included in proposed Rule 3.9(g).
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 32943 (September 22,
1993), 58 FR 50984 (September 29, 1993) (File No.SR-CBOE-91-38)
(reflecting Commission approval of the procedural provisions related
to the Exchange's requirement that individual membership applicants
applying to have an authorized floor function are required to pass
the Exchange's Floor Membership Qualification Exam).
---------------------------------------------------------------------------
The Exchange is also proposing to codify in CBOE Rule 3.9 the
following current membership application procedures which are not
currently set forth in CBOE Rule 3.9. First, proposed CBOE Rule 3.9(d)
requires each applicant to promptly update the applicant's application
materials if any of the information provided in these materials becomes
inaccurate or incomplete after the date of submission of the
application to the Membership Department and prior to any approval of
the application. This requirement is currently set forth in the
application materials themselves and is proposed to be added to Rule
3.9. Second, proposed CBOE Rule 3.9(c) clarifies that the Membership
Committee may utilize a posting period for any type of membership
application and that the Membership Committee may shorten or waive a
required posting period for an applicant if the Membership Committee
determines that doing so is warranted due to extenuating circumstances.
Third, proposed CBOE Rule 3.9(f) clarifies that the Exchange typically
does not investigate an individual member applicant who was an
individual member within the prior 6 months since the person was
recently an Exchange member. Fourth, the provisions of CBOE Rule
3.4(d), which provide that the Membership Committee need not act on a
membership application when the applicant is the subject of an inquiry,
investigation, or proceeding conducted by a self-regulatory
organization or government agency involving the applicant's fitness for
membership until the matter has been resolved, are proposed to be moved
to proposed Rule 3.9(j). Fifth, proposed CBOE Rule 3.9.02 clarifies
that a member organization which desires to change its name is required
to submit an application to the Membership Department and that the
Membership Committee may disapprove the name change application or
membership application of an organization if the Membership Committee
determines that the proposed name of the organization is confusingly
similar to the name of an existing member organization.
One substantive change that has been incorporated into CBOE Rule
3.9 is that any member desiring to change the Clearing Member that
guarantees the member's Exchange transactions will be required to
submit an application for approval to do so to the Membership
Department, including a financial statement which sets forth the
member's assets and liabilities. Proposed CBOE Rule 3.9 also provides
that the Membership Department will provide a copy of this financial
statement to the new Clearing Member designated in the application and
will post notice to the membership that the application has been
received (unless the Clearing Member(s) that will no longer be
guaranteeing the member's Exchange transactions waive this
requirement). This amendment is intended to permit the Clearing
Member(s) that will no longer be clearing the member's Exchange
transactions as well as other members to notify the Membership
Department if the member has outstanding liabilities that bear upon the
member's qualification for membership and to provide the new Clearing
Member designated by the member with information regarding the member's
financial standing so that the Clearing Member will have this
information available to it in connection with managing the risk
associated with the member's trading activities.
Rule 3.10--Effectiveness of Membership or Approved Associated Person
Status
CBOE Rule 3.10 is proposed to be amended to restate the Exchange's
current rule provisions regarding effectiveness of membership or
approved associated person status. One substantive change that has been
incorporated into CBOE Rule 3.10 is that an applicant that is approved
to become a lessor will have 6 months to become effective in that
status. Other types of applicants will continue to have 90 days to
become effective in their approved statuses. Applicants that have been
approved to become lessors will have a longer time period to become
effective in that status because they generally must purchase a
membership to become an effective lessor and it is often difficult for
lessors to do so within 90 days.
Rule 3.11--Notice of Effectiveness of Membership or Approved Associated
Person Status
CBOE Rule 3.11 is proposed to be amended to reflect the Exchange's
current procedures for notifying the membership of the effectiveness
any membership, membership status, or associated person status. CBOE
Rule 3.11 is also proposed to be amended to delete the requirement that
such notices be posted on the Exchange Bulletin Board since these
notices are included in the Exchange Bulletin (which is forwarded to
all members) and since these notices relate to statuses that have
already been approved (unlike notices of pending membership
applications which are posted on the Exchange Bulletin Board so that
members may submit comments to the Membership Department regarding an
applicant's fitness for membership).
Rule 3.12--Membership Rights and Restrictions on Their Transfer
CBOE Rule 3.12 is proposed to be amended to include in proposed
CBOE Rule 3.12(b)(ii) a provision currently set forth in CBOE Rule
3.15(g) regarding restrictions on the transfer of membership rights
(which is proposed to be deleted from CBOE Rule 3.15) and to indicate
that certain rights may be granted to the grantee of an Authorization
to Sell a membership pursuant to proposed CBOE Rule 3.14(d) and
proposed CBOE Rule 3.15(b) (which are more fully discussed below).
Rule 3.13--Purchase of Membership
CBOE Rule 3.13 is proposed to be amended to generally provide that
any newly issued memberships may be purchased pursuant to procedures
established by the Exchange. CBOE Rule 3.13 is also proposed to be
amended to clarify that only those approved to be an owner or lessor
may purchase a membership and that any bid to purchase an outstanding
transferable membership submitted by a person or organization approved
to be an owner or lessor shall be canceled at such time that the person
or organization is no longer approved to be an owner or lessor. In
addition, proposed CBOE Rule 3.13(c) clarifies that a purchaser must
pay for a purchased membership within 2 business days of the acceptance
of a bid for a newly issued membership or the matching of a bid and
offer for an outstanding transferable membership.
Rule 3.14--Sale and Transfer of Membership
The Exchange's membership transfer provisions of CBOE Rule 3.14(c)
are proposed to be amended to provide that if the owner of a
transferable membership requests the transfer of the membership
pursuant to CBOE Rule 3.14(c)(iii) to an organization in which the
transferor will maintain an interest, the interest must be at least
equal in
[[Page 63092]]
value to the current market price of the membership (instead of the
lower of the current market price or cost of the membership). Because
the market price of a membership has increased significantly over the
years, maintaining an ownership interest in an organization equal to
the original cost that a member may have paid for a membership may no
longer reflect a material ownership interest in that organization.
Current CBOE Rule 3.15.01 provides that the Exchange may recognize
and give effect to a valid instrument by which a member, in
consideration of a loan or guarantee of a loan by another member for
the purpose of purchasing a membership, has authorized the lending or
guaranteeing member to sell that membership. Proposed CBOE Rule 3.14(d)
replaces this provision and also expands upon it by permitting the
owner of a transferable membership to voluntarily grant an
Authorization to Sell the membership to any other member (including,
but not limited to, another member who has provided or guaranteed a
loan to the membership owner for the purpose of purchasing a
membership) and by specifying in more detail the provisions that are
proposed to govern the grant of an Authorization to Sell and the
exercise of authority thereunder.
Among the provisions under proposed CBOE Rule 3.14(d) that will
apply to an Authorization to Sell are the following: (i) An
Authorization to Sell shall be effective only if it has been executed
on a form prescribed by the Exchange and filed with the Membership
Department; (ii) a membership owner may not grant an Authorization to
Sell a particular membership to more than one member; (iii) the grantee
of an Authorization to Sell will have all of the authority granted
under the Exchange's Constitution and rules relating to the sale of the
membership that would otherwise be vested in the membership owner; (iv)
a grantee of an Authorization to Sell a membership must notify the
membership owner in writing at least 3 business days prior to
exercising the grantee's right to sell the membership; (v) an
Authorization to Sell shall be irrevocable and may only be canceled if
the grantee of the Authorization to Sell consents to its cancellation;
(vi) the Exchange shall take direction solely from the grantee of an
Authorization to Sell a membership with respect to matters relating to
the sale of the membership; (vii) notwithstanding the foregoing, a
membership owner and a grantee of an Authorization to Sell a membership
may have a written contract between them which sets forth the
circumstances under which the grantee may exercise the grantee's
authority to sell the membership, and any breaches of this written
contract may be redressed through arbitration under Chapter XVIII of
the Exchange's rules or through other means permitted by that Chapter;
(viii) the grantee of an Authorization to Sell a membership that
exercises the grantee's right to sell the membership may not be the
purchaser of the membership unless the membership owner consents; and
(ix) following receipt by the Membership Department of an Authorization
to Sell that has been granted by a member, a cancellation of the
Authorization to Sell, or a contract concerning the exercise of
authority under the Authorization to Sell, the Membership Department
will provide a copy of the applicable document to the member's Clearing
Member(s).
Rule 3.15--Proceeds From the Sale of Membership
Current CBOE Rule 3.15 and current provisions of CBOE Rule 3.14 and
Rule 3.16 provide for a claims process whenever a membership is sold,
whenever a membership is transferred without a sale, at the beginning
of a membership lease, and at the end of a membership lease. During
this claims process, the Exchange, the Clearing Corporation, and
members may submit claims against the owner of the membership that is
being sold, transferred, or leased. If the membership was leased (such
as is always the case at the end of a membership lease), the Exchange,
the Clearing Corporation, and members may also submit claims against
the lessee of the membership (except at the beginning of a membership
lease when claims may only be submitted against the membership owner).
In the case of a sale, these claims (if determined to be valid by the
Board of Directors) are satisfied out of the proceeds of the sale. In
the case of a transfer or the beginning or end of a lease, the owner of
the membership that is the subject of the transfer or lease must post
cash with the Exchange in an amount equal to the last membership sale
or must obtain a letter of guarantee from a Clearing Member to satisfy
the payment of any valid claims.
For a number of reasons, the Exchange is proposing to modify this
membership claims process so that the only permissible claimant under
the process will now be the grantee of an Authorization to Sell, so
that the process will only occur upon the sale of a membership, and so
that lessors will no longer have liability under the claims process for
the debts and liabilities of their lessees. The primary reason for
these modifications is that the Exchange no longer believes it is
equitable for a lessor to be liable under the membership claims process
for the debts and liabilities of a lessee, particularly when it is
almost always the case that a lessor has no involvement in incurring a
lessee's debts and liabilities and has no means to monitor the
activities of a lessee. The Exchange also believes that these
modifications to the membership claims process, when coupled with
providing for the ability to grant an Authorization to Sell a
membership, will result in more individuals and entities desiring to
own Exchange memberships (including a greater number of individuals and
entities who are engaged in trading activities on the Exchange desiring
to own Exchange memberships). Additionally, these modifications will
eliminate the significant administrative burden on the Exchange,
Clearing Members, and other members that is a byproduct of the current
membership claims process while still preserving the right of members
to pursue claims against other members through the arbitration process.
Specifically, CBOE Rule 3.15 is proposed to be amended to provide
for the following modified membership claims process upon the sale of a
membership in place of the current membership claims process.
In the event of a sale of a membership for which no Authorization
to Sell has been granted, the Exchange shall remit the sale proceeds
from the sale of the membership to the member whose membership was sold
promptly following receipt of the sale proceeds by the Exchange.
In the event of a sale of a membership for which an Authorization
to Sell has been granted, the grantee shall have 2 business days from
the date of the sale to notify the Membership Department of any claims
the grantee has against the member whose membership was sold that are
related to the member's Exchange business activities, and the member
whose membership was sold shall have 5 business days from the date of
the sale to either acknowledge or contest those claims. The Exchange
shall then remit to the grantee that portion of the sale proceeds
applicable to those claims that were acknowledged by the member whose
membership was sold, escrow that portion of the remaining sale proceeds
applicable to those claims that were contested by the member whose
membership was sold, and remit to the member whose membership was sold
any remaining
[[Page 63093]]
portion of the sale proceeds. Any portion of the sale proceeds
applicable to contested claims that has been escrowed shall remain in
escrow until the grantee and the member whose membership was sold
resolve the claims through arbitration under Chapter XVIII of the Rules
or through other means permitted by that Chapter. Notwithstanding the
foregoing, the Exchange may determine to release to the member whose
membership was sold sale proceeds that have been escrowed due to
contested claims if the Exchange determines that the grantee of the
Authorization to Sell is not proceeding in good faith to resolve the
contested claims. Following the resolution of any contested claims for
which sale proceeds have been escrowed, the Exchange shall remit the
escrowed proceeds to the grantee and the member whose membership was
sold in accordance with the resolution of these claims.
CBOE Rule 3.15 also provides further explanation regarding the
procedural aspects of this claims process, lists examples of types of
claims related to Exchange business activities that may be submitted by
the grantee of an Authorization to Sell under this claims process, and
notes that whether a claim is related to Exchange business activities
shall be determined solely by the Exchange.
Additionally, proposed CBOE Rule 3.14(d)(viii) provides that,
consistent with the priority provided for under CBOE Rule 3.15(b) to
claims made by the grantee of an Authorization to Sell, the Exchange
will recognize a security interest of the grantee in any proceeds from
the sale of a membership that the grantee is entitled to receive
pursuant to CBOE Rule 3.15(b), but will not recognize any other lien or
security interest in a membership or in the proceeds from the sale of a
membership.
Rule 3.16--Special Provisions Regarding Chicago Board of Trade
Exerciser Memberships
CBOE Rule 3.16 is proposed to be amended to clarify that a Chicago
Board of Trade exerciser membership acquired by a person pursuant to
Paragraph (b) of Article Fifth of the Exchange's Certificate of
Incorporation terminates upon receipt by the Membership Department of
written notice from the person that the person is surrendering the
membership or at such time that the person is no longer entitled to
membership on the Exchange in accordance with Paragraph (b) of Article
Fifth. In addition, the provisions regarding leased memberships
currently contained in CBOE Rule 3.16(b) have been deleted and restated
in an amended form in proposed CBOE Rule 3.17.
Rule 3.17--Leased Memberships
Proposed CBOE Rule 3.17 restates the provisions regarding leased
memberships that are currently contained in CBOE Rule 3.16(b) and also
incorporates the following substantive changes to those provisions.
Proposed CBOE Rule 3.17(a) clarifies that the Exchange shall bear
no liability to a lessor or lessee in connection with the Exchange's
review and approval of a lease agreement.
In connection with the modification of the current membership
claims process to eliminate lessor liability under that process for
claims against a lessee, the Exchange is proposing to include an
explicit provision in proposed CBOE Rule 3.17(b) which provides that a
lessor of a membership shall not have any liability for claims against
a lessee of that membership solely by virtue of being a lessor of the
membership. Proposed CBOE Rule 3.17(b) also clarifies that this
provision is not intended to limit or define any responsibility a
lessor may have for claims against a lessee by virtue of a contractual
obligation or ownership relationship between the lessor and lessee
beyond the lease of a membership from the lessor to the lessee.
Similarly, the Exchange is proposing to eliminate the current provision
of CBOE Rule 3.16(b) which provides that any division of rights and
responsibilities between a lessor and lessee with respect to the
satisfaction of applicable Exchange dues, fees, and other charges shall
not affect a lessor's obligation to pay all amounts due the Exchange
with respect to which a lessee has been delegated responsibility.
Proposed CBOE Rule 3.17(c) clarifies that the Exchange may specify
that particular provisions be included in membership lease agreements
in addition to those specifically designated in the Rule.
Proposed CBOE Rule 3.17(d) requires a lessee to promptly file the
lease agreement and any amendments thereto with the Membership
Department and to promptly notify the Membership Department of any
termination of the lease before the termination becomes effective. This
obligation is proposed to be placed on lessees because lessees are
present at the Exchange to conduct their activities.
Proposed CBOE Rule 3.17(e) is intended to prevent the potential
occurrence of a situation in which a lessor sells or transfers a
membership during the term of a lease of the membership and the lessee
is left with no membership with which to conduct the lessee's Exchange
business activities. Specifically, proposed CBOE Rule 3.17(e) provides
that in the event a lessor sells or transfers a membership while it is
being leased to a lessee, the purchaser or transferee of the membership
is required to lease the membership to the lessee pursuant to the terms
of the lessee's existing lease agreement with the lessor for a period
of 20 business days following the date the membership is transferred to
the purchaser or transferee. The purchaser or transferee may also
satisfy this requirement by making arrangements with another membership
owner to permit the lessee to lease a membership from that membership
owner for the required time period pursuant to the terms of the
lessee's existing lease agreement. Additionally, the lessee is
permitted to waive this requirement if the lessee so chooses. The
Exchange believes CBOE Rule 3.17(e) will prevent the disruption of
business on the Exchange which can occur if a lessor sells or transfers
a membership while it is being leased to a lessee by allowing the
lessee a reasonable amount of time to procure the lease of another
membership.
Proposed CBOE Rule 3.17(e) further provides that it shall be a rule
violation for a lessor to circumvent the requirements of proposed CBOE
Rule 3.17(e) by improperly terminating a membership lease prior to the
sale or transfer of the membership for the purpose of avoiding the
applicability of these requirements. In the event the Exchange
determines that such a circumvention has taken place, proposed CBOE
Rule 3.17(e) provides that the Exchange may impose the requirements of
proposed CBOE Rule 3.17(e) upon the purchaser or transferee of the
membership and/or take disciplinary action against the lessor.
Proposed CBOE Rule 3.17(f) clarifies that in the event a lessor
sells or transfers a membership while it is being leased to a lessee,
the lessor is required to remit to the purchaser or transferee of the
membership any amounts paid to the lessor by the lessee under the lease
agreement for any portion of the lease period, up to 20 business days,
during which the lessor will no longer be leasing the membership to the
lessee. The lessor is required to remit these amounts to the purchaser
or transferee of the membership no later than the date the membership
is transferred to the purchaser or transferee. The lessor is also
required to remit to the lessee by the transfer date any remaining
amounts paid to the lessor by the lessee under
[[Page 63094]]
the lease agreement for any portion of the lease period beyond the
foregoing 20 business day period. Additionally, in the event the lessee
waives the requirements of CBOE Rule 3.17(e) described above, the
lessor is required to remit to the lessee by the transfer date all
amounts paid to the lessor by the lessee under the lease agreement for
any portion of the lease period during which the lessor will no longer
be leasing the membership to the lessee.
Rule 3.18--Members and Associated Persons Who Are or Become Subject to
a Statutory Disqualification
The Exchange is proposing to modify its procedures for determining,
with respect to a member or associated person who is or becomes subject
to a statutory disqualification, whether to permit that member or
associated person to continue in membership or association with a
member, and if so, whether to condition such continuance in membership
or association.
Currently, the Membership Committee is authorized under current
CBOE Rule 3.4, with respect to a member or associated person who is or
becomes subject to a statutory disqualification, to determine not to
permit that member or associated person to continue in membership or
association with a member or to condition such continuance in
membership or association. However, the Membership Committee must first
gather the relevant information and interview the member or associated
person before rendering its decision. In addition, the member or
associated person has the right to appeal the Membership Committee's
decision to the Exchange's Appeals Committee and to appeal the Appeals
Committee's decision to the Board of Directors. Furthermore, these
appeal rights must be exhausted before the Membership Committee's
decision can take effect. Therefore, it is possible that a member or
associated person could become subject to a statutory disqualification,
such as a serious felony conviction, and still be able to continue to
act in that capacity for an extended period of time while the foregoing
proceedings are pending.
Accordingly, the Exchange is proposing to modify its current
procedures in this regard by replacing them with a more expedited
procedure which will still provide due process to the member or
associated person that is or has become subject to a statutory
disqualification without a right of appeal to the Appeals Committee and
then to the Board of Directors. The proposed modified procedure is set
forth in proposed CBOE Rule 3.18 and has the following substantive
components:
(i) If a member or associated person who is or becomes subject to a
statutory disqualification wants to continue in Exchange membership or
association with a member, the member or associated person is required
to submit an application to the Membership Department within 10 days of
becoming subject to the statutory disqualification.
(ii) Following receipt of the application, or in the event the
Exchange becomes aware that a member or associated person is subject to
a statutory disqualification and has failed within the required time
period to submit an application to continue in membership or
association, the Chairperson of the Membership Committee will appoint a
panel composed of the Membership Committee Chairperson and two other
members of the Membership Committee to conduct a hearing concerning the
matter.
(iii) The hearing panel will hold a hearing concerning the matter
14 or more days following the receipt of the application or the
initiation of the proceeding, and both the subject of the proceeding
and Exchange staff will be afforded an opportunity to present relevant
information, arguments, and witnesses during the hearing.
(iv) Following the hearing, the hearing panel will present its
recommended decision to the Membership Committee, which may ratify or
amend the decision.
(v) The Exchange's Executive Committee may determine within 7 days
after the issuance of the Membership Committee's decision to order
review of the decision. If the Executive Committee does not order
review of the decision, the Membership Committee's decision will become
the final decision of the Exchange.
(vi) If the Executive Committee orders review of the Membership
Committee's decision, the review will be conducted by the Executive
Committee or a panel thereof composed of at least 3 members of the
Executive Committee, whose decision must be ratified by the Executive
Committee, and the Executive Committee's decision will be the final
decision of the Exchange.
The Executive Committee is composed of the Exchange's Chairman,
Vice Chairman, and President, and at least 4 other Exchange directors
and is generally authorized under Section 7.2 of the Exchange's
Constitution to exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the
Exchange. The Exchange is proposing to utilize the Executive Committee
as the review body under proposed CBOE Rule 3.18 instead of the Board
of Directors because the Executive Committee is generally able to
convene more quickly than the Board because of its smaller size.
In the event that the Exchange were to determine to permit a member
or associated person who is subject to a statutory disqualification to
remain in membership or association, the Exchange would also submit a
notice to the Commission to the extent required by Rule 19h-1 under the
Act.\9\
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\9\ 17 CFR 240.19h-1.
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Additionally, in order to help to ensure that the Exchange receives
notice if a member or associated person becomes subject to a statutory
disqualification, proposed CBOE Rule 3.18.02 provides that if an
associated person of a member is or becomes subject to a statutory
disqualification, the member is required to immediately provide written
notice to the Membership Department of the name of the associated
person, the person's capacity with the member, and the nature of the
statutory disqualification.
Rule 3.19--Termination from Membership
Proposed CBOE Rule 3.19 clarifies that the membership status of a
member automatically terminates if the member does not possess a
membership through ownership, lease, or registration of a membership to
the member and that the membership of a member organization
automatically terminates if the member organization has no nominee or
person who has registered his or her membership for the member
organization. Proposed CBOE Rule 3.19 also restates the provision of
current CBOE Rule 3.17 which permits the Exchange, if extenuating
circumstances are present, to allow a member to retain the member's
membership status following an event that triggers the termination of
that status in order to permit the member to re-obtain a membership
status.
Rule 3.20--Dissolution and Liquidation of Member Organizations
Proposed CBOE Rule 3.20 restates the provisions currently set forth
in current CBOE Rule 3.18 regarding dissolution and liquidation of
member organizations and amends those provisions by requiring a member
organization (i) to provide notice of the adoption of a plan of
liquidation or dissolution to both the Department of Financial and
Sales Practice Compliance and the Membership
[[Page 63095]]
Department and (ii) to provide notice to these Departments of any
actual liquidation or dissolution.
Rule 3.21--Obligations of Terminating Members
Proposed CBOE Rule 3.21 restates requirements applicable to
terminating members which are currently set forth in current CBOE Rule
3.19. In addition, in connection with the modification of the current
membership claims which includes the elimination the Exchange's ability
to submit claims against the proceeds of a membership sale under that
process, the Exchange is proposing to delete the provision of current
CBOE Rule 3.19 which permits the Exchange to withhold the distribution
of the proceeds of a sale of a membership if the seller is not current
in the payment of Exchange fees or the submission of various filings.
Current Rules 3.20-3.22A--Government Securities Options Permits
All of the provisions contained in current CBOE Rules 3.20, 3.21,
3.22, and 3.22A relating to government securities options permits are
proposed to be deleted due to the fact that all of these permits have
expired. Similarly, CBOE Rule 1.1(hh), which sets forth the definition
of a government securities options permit holder, and CBOE Rule
6.20.03, which relates to government securities options permit holders,
are also proposed to be deleted.
Rule 3.25--Transfer of Individual Membership in Trust
CBOE Rule 3.25 is proposed to be amended to clarify that (i) the
only type of trust into which a membership owner may transfer a
membership is a living trust; (ii) a member desiring to transfer a
membership in trust is required to submit an application to the
Membership Department which must be approved by the Exchange; (iii) a
Trust Member is required to submit to the Membership Department any
amendments to the trust agreement and to notify the Membership
Department of any changes in the information set forth in the
application to transfer the membership in trust, any changes in
successor trustee, any release of the membership out of trust, and any
termination of the trust; and (iv) the Exchange shall deem a membership
held in trust to have reverted to the Trust Member to be held directly
and not in trust in the event the membership is released from the
trust, the trust terminates, or the trust agreement is amended so that
it no longer complies with the requirements of CBOE Rule 3.25.
Rule 3.27--Options Trading Permits
In connection with the modification of the current claims process
that is applicable to memberships, the Exchange is also proposing to
amend CBOE Rule 3.27 to make the same modifications to the corollary
claims process that is applicable to Options Trading Permits.
Rule 3.28--Extension of Time Limits
Proposed CBOE Rule 3.28 clarifies that any time limit imposed on an
applicant, member, or other person under Chapter III of the Exchange's
rules may be extended by the Membership Committee in the event the
Membership Committee determines that such an extension is warranted due
to extenuating circumstances. This proposed provision is similar to
CBOE Rule 17.13 which authorizes the Exchange to extend time limits
provided for under Chapter XVII of the Exchange's rules.
Rule 3.29--Delegation of Authority
Proposed CBOE Rule 3.29 clarifies that all of the authority granted
to the Exchange under Chapter III of the Exchange's rules may be
exercised by the Membership Committee and/or the Membership Department
and that the Membership Committee may delegate to the Membership
Department any of the authority that is granted to the Membership
Committee under the Exchange's rules. Since there are so many different
types of membership-related applications and approvals provided for
under Chapter III, the Membership Committee may wish to delegate to the
Membership Department the authority to act on certain routine types of
applications and approvals so that the Committee can focus its
attention on the more significant types of membership-related
applications and approvals. Proposed CBOE Rule 3.29 makes clear that
this type of delegation may occur.
Rule 6.76A--Automated Billing Process for Market-Maker Brokerage Bills
In order to streamline the processing and payment of bills for
brokerage services that are provided to Market-Makers by Floor Brokers
and order service firms (``OSFs'') and because Floor Brokers and OSFs
will no longer have the ability to submit claims for outstanding
brokerage bills as part of the membership claims process, the Exchange
is proposing to implement an automated billing process for these bills
which is proposed to be set forth in proposed CBOE Rule 6.76A. Below
are the substantive components of this proposed automated billing
process. Some additional procedural aspects of this proposed automated
billing process are also described in the proposed Rule.
(i) Each Floor Broker and OSF will be required to submit a written
bill by the sixth day of the month to each Market-Maker customer of the
Floor Broker or OSF for brokerage fees incurred by the Market-Maker
during the prior month.
(ii) Submission of a written bill to a Market-Maker for these
purposes shall be deemed to include hand-delivery of the bill to the
Market-Maker, hand delivery of the bill to a representative of the
Market-Maker, or delivery of the bill to the Market-Maker's Clearing
Member with a written notation that the bill is for the Market-Maker.
(iii) A Market-Maker who receives a brokerage bill from a Floor
Broker or OSF in accordance with this billing process will have until
the tenth day of the month to inform the Floor Broker or OSF if the
Market-Maker disputes any portion of the bill.
(iv) A Floor Broker or OSF that has submitted a bill to a Market-
Maker by the sixth day of the month will notify the Exchange's
Accounting Department by the twelfth day of the month of the amount to
bill each Market-Maker customer of the Floor Broker or OSF for
brokerage fees incurred by the Market-Maker during the prior month.
(v) The Exchange will take direction solely from the Floor Broker
or OSF with respect to the amount to bill a Market-Maker pursuant to
this billing process.
(vi) If for any reason a Market-Maker disputes the amount a Floor
Broker or OSF has instructed the Exchange to bill the Market-Maker
pursuant to this billing process, the Market-Maker may pursue a claim
against the Floor Broker or OSF in arbitration under Chapter XVIII of
the Rules or through other means permitted by that Chapter. In
addition, in the event a Floor Broker of OSF improperly instructs the
Exchange to bill a Market-Maker for brokerage fees which the Floor
Broker or OSF is not entitled to receive, the Exchange may discipline
the Floor Broker or OSF pursuant to Chapter XVII of the Exchange's
rules for violating CBOE Rule 4.6 by submitting false statements to the
Exchange.
(vii) The Accounting Department will prepare a monthly Market-Maker
floor brokerage billing list for each Clearing Member that clears
Market-Maker transactions and provide this list to each such Clearing
Member by the twenty-first day of the month.
(viii) A Clearing Member may instruct the Accounting Department not
to draft the Clearing Member pursuant to this billing process for that
portion of the
[[Page 63096]]
brokerage fees billed to a Market-Maker which would cause the Market-
Maker to have a negative balance in the Market-Maker's account at the
Clearing Member.
(ix) On the twenty-fifth day of the month, the Exchange will draft
from each Clearing Member's account at the Clearing Corporation the
total amount billed pursuant to this billing process to Market-Makers
that clear through that Clearing Member.
(x) The Exchange will then promptly distribute the amounts drafted
to the applicable Floor Brokers and OSFs.
(xi) In the event a Clearing Member instructs the Accounting
Department not to draft a portion of the brokerage fees billed to a
Market-Maker, the Exchange will distribute on a pro rata basis to the
Floor Brokers and OSFs that submitted instructions to bill the Market-
Maker, the portion of the brokerage fees which were drafted from the
Clearing Member for that Market-Maker.
(xii) In the event a Clearing Member instructs the Accounting
Department not to draft a portion of the brokerage fees billed to a
Market-Maker and the Market-Maker later has a positive balance in the
Market-Maker's account at the Clearing Member, the Clearing Member will
be required to deduct from the account the amount of the brokerage fees
that the Clearing Member previously instructed the Accounting
Department not to draft and to distribute these funds to the Floor
Brokers and OSFs who previously did not receive full payment.
(xiii) If a Floor Broker or OSF fails to satisfy the submission
deadlines provided for under this billing process for the billing of
brokerage fees incurred by a Market-Maker during the prior month, the
Floor Broker or OSF may not bill the Market-Maker for these brokerage
fees pursuant to this billing process. However, the Floor Broker or OSF
will still be permitted to bill the Market-Maker for these brokerage
fees in the regular, non-automated fashion.
(xiv) In the event that any of the deadlines under this billing
process fall on a non-business day, the deadline will advance to the
next business day.
In order to contribute toward defraying the Exchange's cost of
administering this automated billing process, the Exchange also
proposes to assess, in a form and manner prescribed by the Exchange,
(i) a $0.50 fee to each Floor Broker and OSF for each bill of $5.00 or
more from the Floor Broker or OSF that is assessed to a Market-Maker
under this billing process and (ii) a $0.50 fee to each Market-Maker
for each bill of $5.00 or more from a Floor Broker or OSF that is
assessed to the Market-Maker under this billing process.
Rules 6.72, 6.78, and 8.5--Clearing Member Guarantees
CBOE Rules 6.72, 6.78, and 8.5 relate to guarantees provided by
Clearing Members. CBOE Rule 6.72 is proposed to be amended to clarify
that a Floor Broker may only have one Letter of Authorization guarantee
from a Clearing Member in effect at a time. CBOE Rules 6.72, 6.78, and
8.5 are each proposed to be amended to clarify that if a Clearing
Member revokes a guarantee provided under one of those Rules, the
Exchange will only post notice of the revocation if requested to do so
by the Clearing Member. The Exchange does not believe that it is
necessary to require that all of these revocations be posted because
most are routine and result because a member is terminating from
membership or is changing the Clearing Member that guarantees the
member's Exchange transactions. In addition, CBOE Rule 8.5 is proposed
to be amended to clarify that a Market-Maker may have in effect more
than one Letter of Guarantee from a Clearing Member and that each such
Letter of Guarantee shall provide that the issuing Clearing Member
accepts financial responsibility for Exchange transactions made by the
guaranteed Market-Maker when executing transactions through the issuing
Clearing Member.
Also, in order to ensure that Clearing Members receive notice of
proceedings involving disputed trades, CBOE Rule 18.2 is proposed to be
amended to provide that in any arbitration concerning the alleged
failure to honor a trade, each party to the arbitration shall promptly
provide copies of all documents filed or received in the arbitration by
that party to the Clearing Member(s) that guaranteed that party's
Exchange transactions when the alleged trade took place.
Rule 8.9--Securities Accounts and Orders of Market-Makers
Proposed CBOE Rule 8.9.01 clarifies that each participant in a
joint account shall be jointly and severally liable for any losses
which may be incurred by the joint account, except that in the case
where a participant in a joint account is a nominee of a member
organization, or is an individual who has registered his or her
membership for a member organization, and the participant is not acting
as an independent Market-Maker pursuant to CBOE Rule 3.8(f), the member
organization and not the participant shall be so liable. This
clarification is intended to make applicable to joint accounts the
general provision proposed to be included in proposed CBOE Rule 3.8(d)
which clarifies that a nominee shall not, solely by virtue of being a
nominee of a member organization, have any personal liability to the
Exchange or to any other member for Exchange transactions and other
securities transactions made by the nominee on behalf of the member
organization.
Rule 18.2--Procedures in Member Controversies
In order to ensure that Clearing Members receive notice of
proceedings involving disputed trades, CBOE Rule 18.2 is proposed to be
amended to provide that in any arbitration concerning the alleged
failure to honor a trade, each party to the arbitration shall promptly
provide copies of all documents filed or received in the arbitration by
that party to the Clearing Member(s) that guaranteed that party's
Exchange transactions when the alleged trade took place.
Membership Fee Circular
The Exchange is proposing to amend its Membership Fee Circular to
only include in the Circular information regarding membership fees and
to delete from the Circular two introductory paragraphs regarding
certain rule requirements related to membership since these
requirements are now proposed to be more fully set forth in the
membership rules themselves. The Exchange is also proposing to amend
the description in the Membership Fee Circular of the fee that is
payable by an applicant who is subject to a statutory disqualification
to reflect that the rule provisions governing this situation are now
proposed to be set forth in proposed CBOE Rule 3.18.
Special Members
The Exchange proposes to delete all references to special members
contained in the Exchange's rules since all special memberships on the
Exchange have expired. These proposed deletions are from CBOE Rules
3.12, 3.14, 3.16, 6.5, and 9.1.
Nonsubstantive Rule Changes
The Exchange is also proposing to make certain nonsubstantive
wording changes to several CBOE membership rules, including CBOE Rules
3.23, 3.24, 3.27, 6.77, and 10.11.
Conforming Rule Changes
Additionally, the Exchange proposes to make conforming changes to
other CBOE rules (including CBOE Rules 24A.15, 26.11, 26.13, and 30.74,
and the NYSE Options Program Permit Lease
[[Page 63097]]
Pool Procedures \10\) to make them consistent with the proposed rule
changes described above.
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\10\ See Amendment No. 2, supra note 4.
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Effectiveness of Rule Change
This proposed rule change will become effective 30 days from the
date of its approval by the Commission. The purpose of this 30 day time
period is to provide the Exchange with an opportunity to notify the
Exchange's membership of the effectiveness of this rule change and to
provide those members who desire to grant or receive Authorizations to
Sell with an opportunity to do so before the amended rule provisions
take effect.
2. Statutory Basis
The proposed rule change will codify in the Exchange's membership
rules various procedures that have been implemented over time pursuant
to the Exchange's current membership rules, will clarify, restate, and
reorganize certain of the Exchange's membership rules to make it easier
for the Exchange's membership to reference and understand those
provisions, and will incorporate into the Exchange's membership rules
various proposed improvements and enhancements to those rules.
Accordingly, the Exchange believes that the proposed rule change is
consistent with and furthers the objectives of Section 6(b)(5) of the
Act \11\ in that it is designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts and
practices, and to protect investors and the public interest.
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\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition.
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 self-regulatory organization consents, the Commission will:
(A) by order approve the 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, as amended, is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW, Washington,
DC 20549-0609. 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. Copies of such
filing will also be available for inspection and copying at the
principal office of the Exchange. All submissions should refer to File
No. SR-CBOE-99-15 and should be submitted by December 9, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-29777 Filed 11-17-99; 8:45 am]
BILLING CODE 8010-01-P
