[Federal Register Volume 60, Number 45 (Wednesday, March 8, 1995)]
[Notices]
[Page 12795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5579]
[[Page 12795]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35430; File No. SR-CBOE-94-48]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Inc.; Order Granting Approval to Proposed Rule Change Relating to the
Placement of CBOE Memberships Into Trusts
March 1, 1995.
I. Introduction
On December 1, 1994, the Chicago Board Options Exchange, Inc.
(``CBOE'' or ``Exchange'') submitted to the Securities and Exchange
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'')1 and Rule 19b-4
thereunder,2 a proposed rule change to adopt new Rule 3.25, which
would enable an individual CBOE member to place his membership in trust
for estate planning purposes, subject to certain requirements.
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 35220 (Jan. 11, 1995), 60 FR 3889 (Jan. 19,
1995). No comments were received on the proposal.
II. Description of the Proposals
The Exchange proposes to adopt new Rule 3.25, which would permit
individual members to place their memberships into trusts under certain
conditions. The proposed rule lays out the framework of a permissible
trust and imposes substantive as well as procedural obligations on a
member transferring his membership into a trust (``trust member'').
The proposed rule provides the structure of a trust into which a
member may transfer his membership. A trust member must be the sole
trustee and sole beneficiary of the trust during his lifetime. The
trust member must remain personally liable for all obligations and
liabilities associated with the membership, which continues to be
subject to the rules of the Exchange. Subject to the collateral deposit
requirements of Rule 3.14(c), a membership in trust may be transferred
during the lifetime of the trust member or at his death to an eligible
family member who is approved for Exchange membership in accordance
with Rule 3.14(c)(1) or during the lifetime of the trust member to a
member organization in accordance with Rule 3.14(c)(3). A membership in
trust may also be transferred back to the trust member to be held
directly and not in a trust.
The proposed rule imposes substantive obligations on a member who
seeks to transfer his membership by requiring that certain terms be
included in the trust agreement. Specifically, a member's trust
agreement must provide for a successor trustee for the purpose of
transferring the membership in the event of the trust member's death,
legal incompetence, or any other condition that substantially impairs
the member's ability to transact ordinary business.3 A legally
qualified individual or institution may be appointed as successor
trustee for this purpose.4 A trust agreement also may provide the
successor trustee with the authority to continue holding the membership
in trust for the benefit of a trust member during any period of his
legal incompetency or disability as long as the membership is leased
during that period in accordance with Rule 3.16(b). In addition, the
proposed rule requires trust agreements to exempt the Exchange from
liability for any actions or inactions of the trust member or any
successor trustee with respect to the administration of the trust or
the management of the trust assets.
\3\A physician who has personally examined or treated the trust
member must certify in writing that the trust member has become
disabled.
\4\The successor trustee must transfer the membership in
accordance with the rules of the Exchange and subject to the right
of the Exchange to offer the membership for sale in accordance with
Rule 3.14(b)(1).
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The proposed rule also contains procedural requirements in placing
a membership in trust. The proposed rule requires an individual member
who seeks to transfer his membership into a trust to provide the
Exchange with a copy of the trust agreement with a certification by the
attorney who prepared the agreement stating that it conforms to the
requirements of proposed Rule 3.25. The Exchange reserves a right to
disapprove the transfer if it finds that the trust agreement does not
meet the requirements of the proposed rule. The Exchange will provide a
member with a written notification if the proposed transfer is
disapproved.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Section 6(b).\5\ In particular,
the Commission believes the proposal is consistent with the Section
6(b)(5) requirements that the rules of an exchange be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts, and, in general, to protect investors and the
public interest.
\5\15 U.S.C. 78f(b) (1988).
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The Commission believes that the new proposed Rule 3.25 achieves a
reasonable balance between the Exchange's interest in providing members
with the flexibility to plan their estate and its interest in
regulating and protecting its membership. Under proposed Rule 3.25, a
member may transfer his membership to a trust provided that the trust
agreement contains certain provisions relating to (1) the applicable
procedures for a subsequent transfer of the membership contained in the
trust and (2) the exclusion of the CBOE from liability for certain
trust actions or omissions.
Moreover, the trust agreement must be submitted to the Exchange for
review and such trust agreement can be disapproved by written notice to
a member if it fails to meet the above conditions or other requirements
imposed by the proposed rule. The Commission believes that these
conditions are an appropriate means of addressing the unique concerns
in maintaining and/or transferring an exchange membership that is held
in trust form. The proposed rule change does not affect the substantive
requirements and duties of a member whose interest is held in trust. In
particular, a ``trust member'' shall remain personally responsible for
all obligations and liabilities associated with the membership and its
use, and the membership will remain subject to all of the rules of the
CBOE. Overall, this approach allows the Exchange to provide members
with useful, but appropriately controlled estate planning flexibility.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\6\ that the proposed rule change (SR-CBOE-94-48) is approved.
\6\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-5579 Filed 3-7-95; 8:45 am]
BILLING CODE 8010-01-M
