[Federal Register Volume 61, Number 39 (Tuesday, February 27, 1996)]
[Notices]
[Pages 7285-7287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4352]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36863; File No. SR-CBOE-96-02]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Inc., Relating to the
Liability of the Exchange and its Directors, Officers, Employees, and
Agents, and Requiring Members to Pay the Exchange's Costs of Litigation
Under Specified Circumstances
February 20, 1996.
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 January 18, 1996, the Chicago Board Options Exchange, Inc. (``CBOE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4 (1994).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The CBOE proposes to amend various Exchange rules pertaining to the
liability of the Exchange, to adopt new Rule 6.7A prohibiting a member
from instituting certain types of legal proceedings against Exchange
officials, and to adopt new Rule 2.24 requiring a member to pay the
Exchange's costs of litigation under specified circumstances. The text
of the proposed
[[Page 7286]]
rule change is available at the Office of the Secretary, the CBOE, and
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 CBOE include 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 CBOE has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Exchange Liability
The principal rule concerning Exchange liability is Rule 6.7(a),
which currently provides that the Exchange shall not be liable to
members, member organizations, or to associated persons for loss,
damages, or claims arising out of the use or enjoyment of the
facilities afforded by the Exchange, whether the loss, damages, or
claims resulted from negligence or other unintentional errors or
omissions, or from a cause not within the control of the Exchange. The
proposed amendment to Rule 6.7(a) clarifies that, except as otherwise
specifically provided in the rules of the Exchange, neither the
Exchange nor its directors, officers, committee members, employees, or
agents shall be liable to members or their associated persons except
where the Exchange's liability is attributable to willful misconduct,
gross negligence, bad faith, fraud, or criminal acts.
The proposed amendment to Rule 6.7 also incorporates, without
material change, certain provisions which are currently set forth in
Rules 23.14 and 24.12 to the effect that the Exchange is not liable for
errors, omissions, or delays in collecting or disseminating various
kinds of data, and the Exchange does not warrant such data. According
to the Exchange, the purpose of moving these limitations of liability
and disclaimers of warranty to Rule 6.7 is to place related subjects in
a single rule.
In addition, the CBOE proposes to make non-substantive amendments
to Rules 7.11, 23.14, and 30.75, and to delete Rule 24.12 in order to
eliminate provisions that duplicate what is set forth in Rule 6.7, as
well as to clarify and conform the language of all of the rules
pertaining to the liability of the Exchange.
The CBOE also proposes certain changes to Interpretation and Policy
.03 to Rule 6.7, which currently limits the Exchange's liability with
respect to orders routed through the Exchange's Order Routing System
(``ORS'') once the orders are printed at printers located on the
Exchange floor. These changes clarify the description of the printers
to which orders may be routed, and limits the liability of the Exchange
once an order routed through ORS appears on a public automated routing
(``PAR'') system terminal screen.
Legal Proceedings Against Exchange Directors, Officers, Employees, or
Agents
The proposed amendment adds new Rule 6.7A, which prohibits a member
or associated person from instituting a lawsuit or any other legal
proceeding against any director, officer, employee, agent, or other
official of the Exchange or any subsidiary, for actions taken or
omitted to be taken in connection with the official business of the
Exchange or any subsidiary. Rule 6.7A, however, does not apply to
violations of the federal securities laws where a private right of
action exists, to appeals of disciplinary actions, or to other actions
by the Exchange as provided for in the rules of the Exchange. According
to the Exchange, the purpose of disallowing lawsuits or other legal
proceedings against Exchange officials or agents when they are acting
on Exchange business is to eliminate the potential exposure to personal
liability of such persons, which impairs their ability to perform their
duties.
Exchange's Cost of Defending Legal Proceedings
The proposed amendment adds new Rule 2.24, which requires a member
or associated person who fails to prevail in a lawsuit or other legal
proceeding instituted by that person against the Exchange or other
specified persons, and related to the business of the Exchange, to pay
all reasonable expenses, including attorneys' fees, incurred by the
CBOE in its defense during such proceeding. This provision is applied
only in the event that the Exchange's expenses exceed fifty thousand
dollars. According to the Exchange, this rule is intended to discourage
unfounded, vexatious litigation against the CBOE where the Exchange's
costs of defense are significant, without having any undue chilling
effect on legitimate claims of members. The proposed rule would apply
to all types of legal proceedings that might be instituted by members
against the Exchange or any of its directors, officers, committee
members, employees, or agents, except that it expressly would not apply
to disciplinary actions by the Exchange or to appeals therefrom, to
other administrative appeals of Exchange actions, or to any specific
instance where the Board has granted a waiver of this provision.
The CBOE believes that the proposed rule change is consistent with
Section 6(b)(5) of the Act in that, by limiting the liability of the
Exchange and its directors, officers, employees, and agents, by
precluding certain types of legal actions by members against such
persons individually, and by discouraging frivolous lawsuits against
the Exchange, it will reduce the costs of the Exchange in responding to
claims and lawsuits, thereby permitting the resources of the Exchange
to be better utilized for promoting just and equitable principles of
trade and for protecting investors and the public interest.
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 of 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 reasons for so finding, or (ii) as to
which the CBOE consents, the Commission will:
A. by order approve the proposed rule change, or
B. institute proceedings to determine whether the proposed rue
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
[[Page 7287]]
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.
Sec. 552, will be available for inspection and copying at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of the CBOE. All
submissions should refer to File No. SR-CBOE-96-02 and should be
submitted by March 19, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\3\
\3\ 17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-4352 Filed 2-26-96; 8:45 am]
BILLING CODE 8010-01-M
