[Federal Register Volume 62, Number 96 (Monday, May 19, 1997)]
[Notices]
[Pages 27283-27285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12965]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38619; File No. SR-CBOE-97-19]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Incorporated Relating to
a Minor Rule Violation Plan Amendment With Respect to Position Limit
Fines
May 13, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 8, 1997, the Chicago
Board Options Exchange, Incorporated (``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 CBOE.\2\ The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. Sec. 78s(b)(1)(1988).
\2\ The proposed rule change was originally filed on March 28,
1997. The CBOE submitted Amendment No. 1 to the proposed rule change
to revise the review period for multiple position limit violations
under CBOE Rule 17.50(g)(1)(b) to a rolling twelve month review
period, instead of a calendar year review period. The CBOE has
requested that the rolling year review period not become effective
until three months after SR-CBOE-97-19 is approved so that CBOE
members who may be affected by the change will have a notice period
prior to the revision. Letter from Margaret G. Abrams, Senior
Attorney, CBOE, to Katherine England, Esq., Assistant Director,
Division of Market Regulation--Office of Market Supervision, dated
May 8, 1997.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The text of the proposed rule change 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 CBOE 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 CBOE has prepared summaries, set forth in sections
A, B and C below, of the most significant aspects of such statements.
[[Page 27284]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
CBOE proposes to revise the position limit summary fine schedule
applied to CBOE members and the period of review for multiple position
limit violations in subsection (g)(1)(b) of Exchange Rule 17.50, its
minor rule violation plan (and for other accounts not qualifying as
non-member customer accounts under subsection (g)(1)(a)). CBOE also
proposes to amend Interpretation and Policy .01 to Rule 17.50 to
conform to the proposed amendments to the fine schedule. The revisions
result from an Exchange review of existing position limit sanction
levels at other exchanges to ensure comparative equality of sanction
levels between option exchanges and to ensure that sanction levels
appropriately fit the violative behavior.\3\
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\3\ A subgroup was formed by the Exchange's Business Conduct
Committee (``BCC'') to review position limit sanctions. The subgroup
included the BCC chairman, vice chairman, another BBC member, a
member firm representative, and five other Exchange committee
chairmen. The subgroup met during September through November 1996.
The subgroup's recommendations were approved by the full BCC in
November 1996, and by the Exchange's Board of Directors in December
1996.
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CBOE proposes to change its review period for multiple member
position limit violations under CBOE Rule 17.50(g)(1)(b) to a rolling
12 month period, rather than a calendar year period, to more
effectively deter repeat violators.
CBOE also proposes to revise its fining method for member position
limit summary fines so that the first three position limit violations
within any twelve month period be redefined in Rule 17.50(g)(1)(b) to
include either a single trade date occurrence or a two consecutive
trade date occurrence. For the first three violations only, CBOE will
treat a member with two consecutive trade dates of position limit
overage in the same manner as a member with a single trade date
overage. CBOE believes that such treatment is appropriate for initial
violations, in that a member with a two consecutive trade date overage
may unintentionally violate the position limit on the first trade date
and, upon becoming aware of the overage, begin to take action to reduce
the position. Market conditions and the size of the overage may then
prevent the member from reducing the overage until the end of the
second trade date.
CBOE notes that a member will not be extended comparable treatment
between a single trade date occurrence and two consecutive trade date
occurrences after the first three violations. For the fourth and
succeeding violations in any twelve month period, CBOE will treat a two
consecutive trade date occurrence as two separate violations. CBOE
believes that the issuance of letters of caution and/or a staff
interview during the initial three violations should educate a member
to avoid future violations. Therefore, the treatment of two consecutive
trade date occurrences as one violation is not warranted for the fourth
and succeeding violations.
The first three member violations will continue to result in non-
disciplinary letters of caution from Exchange staff in lieu of a fine,
so long as the overage does not exceed 5% of the applicable limit. CBOE
proposes that Exchange staff, in its discretion, for the third
violation, may meet with the member during a non-disciplinary staff
interview, in lieu of issuing a letter of caution. The staff interview,
which is conducted in person and at length, may be a useful tool to
prevent future position limit violations.
CBOE does not propose to change the $1.00 per contract position
limit summary fine currently in effect for the fourth through sixth
member violations, and also for the first through third violations when
the overage exceeds 5% of the applicable limit. However, CBOE proposes
to establish fine levels of $2.50 per contract for the seventh through
ninth position limit violations, and $5.00 per contract for the tenth
and succeeding violations. Under the existing fine schedule, a fine of
$5.00 per contract is imposed for the seventh and succeeding
violations. By creating another fining tier between the $1.00 and $5.00
per contract levels, the Exchange will utilize a more graduated
calculation of position limit summary fines.
CBOE believes that all of the above changes in the fining method
for member violations will continue to deter multiple violations and
will improve the minor rule violation plan process, while resulting in
position limit summary fines that are in proportion to other fines
imposed by the Business Conduct Committee for comparable rule
violations.\4\ The proposed rule change is consistent with and furthers
the objectives of Section 6(b)(5) of the Act in that it is designed to
refine and enhance the Exchange's minor rule violation plan as applied
to position limit violations, thereby removing impediments to a free
and open market and protecting investors and the public interest.
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\4\ In combination with CBOE's proposal in File No. SR-CBOE-96-
57 to amend Rule 17.50 so that a member may make a settlement offer
if the summary fine is over $2,500 per day (and not more than $5,000
per day), or if the member had 5 or more consecutive trade date
summary fines aggregation to over $10,000 (and not more than $5,000
per day), the changes proposed herein are designed to bring position
limit summary fines to a level in line with fines for other rule
violations. Together, the proposals should remedy the situation
where a member currently may pay a disproportionately large position
limit summary fine due to a fixed calculation that does not account
for market conditions.
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B. Self-Regulatory Organization's Statement on Burden on Completion
The CBOE 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 CBOE 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 person 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, N.W., Washington, D.C. 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. Sec. 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
[[Page 27285]]
the principal office of CBOE. All submissions should refer to File No.
CBOE-97-19 and should be submitted by June 9, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12965 Filed 5-16-97; 8:45 am]
BILLING CODE 8010-01-M
