[Federal Register Volume 59, Number 227 (Monday, November 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29214]
[Federal Register: November 28, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34987; File No. SR-CBOE-94-35]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to
Expedited Proceedings and Offers of Settlement
November 18, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October
12, 1994, 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 self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to amend CBOE Rules 17.3, ``Expedited
Proceeding,'' and 17.8 ``Offers of Settlement,'' to (1) specify that
the subject of an Exchange investigation must notify the CBOE staff in
writing within 15 days of the date of notification under paragraph (d),
``Notice, Statement and Access,'' of CBOE Rule 17.2, ``Complaint and
Investigation'' that he elects to proceed in an expedited manner
pursuant to CBOE Rule 17.3; (2) reduce the time period during which
settlement offers may be submitted by a subject in an Exchange
disciplinary matter who seeks to resolve the matter through expedited
proceedings pursuant to CBOE Rule 17.3; and (3) allow either the
subject or the Exchange staff to end the negotiations for a letter of
consent at any point during the negotiations.\1\ If either the CBOE
staff or the subject ends the negotiations, the subject will have 15
days to submit a written statement to the BCC pursuant to CBOE Rule
17.2(d) indicating why no disciplinary action should be taken; the CBOE
staff may then bring the matter to the BCC for appropriate action. If
the subject and the CBOE staff are able to agree upon a letter of
consent, the CBOE staff will submit the letter to the BCC.
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\1\CBOE Rule 17.2(c), ``Report,'' requires the CBOE staff to
submit a written report of its investigation to the Exchange's
Business Conduct Committee (``BCC'') in every case where an
investigation results in a finding that there are reasonable grounds
to believe that a violation of the Act or the CBOE's rules has been
committed. CBOE Rule 17.2(d), `'Notice, Statement and Access,''
requires the CBOE staff to notify the subject of the report of the
general nature of the allegations and of the specific provisions of
the Act or of the CBOE's rules that appear to have been violated.
Under CBOE Rule 17.3, the subject of a report written pursuant to
CBOE Rule 17.2 may to seek to dispose of the matter through a letter
of consent.
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In addition, the CBOE proposes to amend CBOE Rule 17.8,
Interpretation and Policy .01, to provide that if the respondent and
the CBOE staff are unable to reach agreement on a letter of consent
under CBOE Rule 17.3 then the number of days over 30 between the time
when the CBOE staff receives notice of the respondent's election to
proceed in an expedited manner under CBOE Rule 17.3 and the date when
either party ends the consent negotiations shall be deducted from the
120-day period specific in CBOE Rule 17.8 (a), ``Submission of Offer,''
which provides a 120-day period within which a respondent may submit a
settlement offer to the BCC. Regardless of the amount of time spent in
unsuccessful consent negotiations, the respondent will have no less
than 14 days to submit a settlement offer to the BCC pursuant to CBOE
Rule 17.8(a).
The text of the proposal is available at the Office of the
Secretary, CBOE, and at the Commission.
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 self-regulatory organization
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 statement may be examined at
the places specified in Item IV below. The self-regulatory organization
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
Background
Pursuant to CBOE Rule 17.2(d), prior to the time that the CBOE
staff submits an investigative report to the Exchange's BCC concerning
possible disciplinary violations, the staff if required to provide a
notice to the subject of the report which sets forth the general nature
of the allegations made in the report and the specific rules that
appear to have been violated (a ``Notification Letter''). CBOE Rule
17.2(d) provides further than, except when the BCC determines that
expeditious action is required, the subject of an investigative report
shall have 15 days from the date of the Notification Letter in which to
submit a written statement to the BCC concerning why no disciplinary
action should be taken against a subject (a ``Notification Response'').
In accordance with CBOE Rule 17.4, ``Charges,'' the CBOE staff then
submits the investigative report and the Notification Response to the
BCC, and if the BCC determines that probable cause exists for finding a
disciplinary violations, a statement of charges is issued against the
subject.
Upon the issuance of a statement of charges against a subject, the
subject is referred to as a respondent under the Exchange's rules.\2\
Pursuant to CBOE Rule 17.8(a), a respondent has 120 calendar days from
the date of service of a statement of charges in which to submit
settlement offers to the BCC. However, the 120-day settlement period
does not include the number of days in excess of seven calendar days
that it takes the Exchange's staff to comply with a respondent's
request for access to documents which is made properly pursuant to CBOE
Rule 17.4(c), ``Access to Documents.''\3\ In addition, with one
exception, a respondent is only entitled to submit a maximum of two
settlement offers to the BCC during the 120-day settlement period.\4\
Upon the expiration of the 120-day settlement period, or earlier if the
BCC rejects a respondent's second settlement offer prior to the
expiration of such period, a hearing is scheduled with respect to the
charges.\5\
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\2\See CBOE Rule 17.4(b), ``Initiation of Charges.''
\3\See CBOE Rule 17.8, Interpretation and Policy .01(c). CBOE
Rule 17.4(c) provides that within 60 calendar days after a statement
of charges has been served upon a respondent, the respondent may
make a written request for access to all documents concerning the
case that are in the Exchange's investigative file except for CBOE
staff investigation and examination reports and materials prepared
by the CBOE staff in connection with such reports or in anticipation
of a disciplinary hearing. However, in providing such documents the
CBOE staff may protect the identity of a complainant.
\4\See CBOE Rule 17.8, Interpretation and Policy .01(a) and (b).
The BCC, at its discretion, may permit a respondent to submit a
third settlement offer during the 120-day settlement period if the
pertinent details of the offer are consistent with parameters and
criteria deemed acceptable by the BCC.
\5\See CBOE Rule 17.8, Interpretation and Policy .02.
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Notwithstanding the foregoing, CBOE Rule 17.3 sets forth an
expedited proceeding process pursuant to which a subject may seek to
resolve a disciplinary matter through a letter of consent with the
Exchange prior to the issuance of a statement of charges against the
subject. CBOE Rule 17.3 requires that a letter of consent contain a
description of the facts, violation, and sanction and must be agreed
upon by the Exchange staff and by the respondent. In addition, CBOE
Rule 17.3 requires that all such letters of consent be accepted by the
BCC. If the Exchange staff and the subject are unable to agree upon a
letter of consent or if they agree upon a letter of consent and the
letter is rejected by the BCC, CBOE Rule 17.3 provides that the matter
shall proceed as if no letter of consent had been submitted to the BCC
(i.e, the BCC may decide to authorize the issuance of a statement of
charges against the subject; the subject is then entitled to submit
settlement offers to the BCC pursuant to CBOE Rule 17.8 during the 120-
day settlement period).
Therefore, under the Exchange's current rules, a subject who
unsuccessfully attempts to resolve a disciplinary matter through
expedited proceedings is permitted to take advantage of the entire 120-
day settlement period, no matter how long the subject may have spent in
the expedited proceeding process. As a result, as noted by the Exchange
and by the Division of Market Regulation (``Division'') of the
Commission in connection with the Division's inspection of the
Exchange's surveillance, investigative, and enforcement programs which
took place last year, it is possible for a respondent to utilize the
expedited proceeding process as a means of circumventing the 120-day
settlement period limit and accordingly as a means of simply delaying
the resolution of the case.\6\
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\6\See Letter from Brandon Becker, Director, Division,
Commission, to Charles Henry, President, CBOE, dated October 20,
1993, and Letter from Charles Henry, President, CBOE, to Brandon
Becker, Director, Division, Commission, dated January 14, 1994.
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Proposal
In response to this concern, the CBOE proposes to amend CBOE Rule
17.8 to reduce the time period during which settlement offers may be
submitted by a subject who seeks to resolve a disciplinary matter
through expedited proceedings, is unable to reach an agreement with
Exchange staff, and consumes over 30 days in the expedited proceeding
process. Specifically, under the proposal, the number of days in excess
of 30 days that a subject spends in the expedited proceeding will be
deducted from the 120-day settlement period applicable to the subject;
provided, however, that in no event will a subject's settlement period
under CBOE Rule 17.8 ever be less than 14 days.\7\
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\7\The proposed amendment will also amend all of the references
to the 120-day settlement period which are contained currently in
CBOE Rule 17.8 to acknowledge that this settlement period will be
shorter in situations where the mechanism described for limiting the
120-day settlement period becomes applicable.
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The mechanism for limiting settlement periods will apply only to a
subject who attempts to resolve a disciplinary matter through expedited
proceedings and is unable to reach an agreement with CBOE staff upon a
letter of consent. It will not apply to a subject who attempts to
resolve a disciplinary matter through expedited proceedings and who
reaches an agreement with CBOE staff upon a letter of consent, but
finds that the agreed-upon letter of consent is not accepted by the
BCC. In addition, under this mechanism, in no event will the number of
days between the time that the expedited proceedings process is deemed
to end (as described below) and the time that a subject is served with
a statement of charges be deducted from the 120-day settlement period
applicable to the subject.
The proposed amendment will also refine the procedures that are
applicable to expedited proceedings under CBOE Rule 17.3 in two ways.
First, the proposed amendment will impose a new requirement that any
subject desiring to attempt to resolve a disciplinary matter through
expedited proceedings submit a written notice of this fact to the
Exchange staff within 15 days from the date of service upon the subject
of a Notification Letter. Second, the proposed amendment will permit
either the Exchange staff or the subject to declare an end to the
negotiations regarding a letter of consent and thus an end to the
expedited proceeding process at any point in the consent negotiations
by delivering a written declaration to this effect to the other party.
After the declaration is delivered, the subject will have 15 days to
submit a Notification Response and the Exchange staff will then be
permitted to bring the matter to the BCC. Currently, there is no
provision in the CBOE's rules setting forth when a subject is deemed to
enter the expedited proceeding process or when the expedited proceeding
process is deemed to end, and these new procedures will establish a
start and end date for when a subject is deemed to be in the expedited
proceeding process so that the number of days that the subject spends
in the expedited proceeding process can be calculated for the purposes
of CBOE Rule 17.8.
Finally, the proposal makes certain editorial changes to clarify
CBOE Rules 17.8 and 17.3 without affecting their substance.
The CBOE believes that the proposal will enhance the efficiency and
effectiveness of the Exchange's disciplinary process. Specifically, the
Exchange believes that by limiting the settlement period applicable to
those subjects who consume over 30 days in the expedited proceeding
process but cannot reach an agreement with the Exchange staff upon a
letter of consent, the proposed changes will minimize opportunities for
delay and thereby help to preserve evidence and the memories of
witnesses.
Basis
The CBOE believes that the proposal is consistent with section 6(b)
of the Act, in general, and further the objectives of section 6(b)(1)
and 6(b)(6), in particular, in that it promotes appropriate
disciplinary processes and enables the Exchange to efficiently enforce
compliance with its rules and federal securities laws.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The CBOE does not believe that the proposed rule change will impose
any inappropriate 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 after the 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 reason for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve such proposed rule change, or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by December 19,
1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-29214 Filed 11-25-94; 8:45 am]
BILLING CODE 8010-01-M
