[Federal Register Volume 62, Number 131 (Wednesday, July 9, 1997)]
[Notices]
[Pages 36854-36855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17940]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38805; File No. SR-CBOE-97-19]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval of
Amendment No. 2 of the Chicago Board Options Exchange, Incorporated;
Amending the Minor Rule Violation Plan With Respect to Position Limit
Fines
July 1, 1997.
On May 8, 1997, the Chicago Board Options Exchange, Incorporated
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ a proposed rule change to
revise the position limit summary fine schedule applied to CBOE
members.\2\ Notice of the proposed rule change, together with the
substance of the proposal, was published in the Federal Register.\3\ No
comment letters were received. The Exchange subsequently filed
Amendment No. 2 to the proposal on June 12, 1997.\4\ This order
approves the proposed rule change, as amended.
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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 applied to multiple position limit
violations occurring in member accounts under CBOE Rule
17.50(g)(1)(b) to a rolling 12 month review period, instead of a
calendar year review period. The CBOE has requested that the rolling
12 month 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.
\3\ Securities Exchange Act Release No. 38619 (May 13, 1997), 62
FR 27283 (May 19, 1997).
\4\ Amendment No. 2 will revise the review period for multiple
position limit violations occurring in the accounts of non-member
customers under CBOE Rule 17.50(g)(1)(a) to a rolling twelve month
review period, instead of a calendar year review period. The CBOE
also has requested that the rolling year review period in Amendment
No. 2 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 June 12, 1997.
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I. Background
The proposed rule change will revise the position limit summary
fine schedule in subsection (g)(1)(b) of Exchange Rule 17.50, the
CBOE's minor rule violation plan, for violations in member accounts and
other accounts that do not qualify as non-member customer accounts
under subsection (g)(1)(a) of Exchange Rule 17.50. The proposed rule
change also will revise Interpretation and Policy .01 to Rule 17.50 to
conform the proposed amendment 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.\5\
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\5\ 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 BCC 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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In addition, the proposed rule change will redefine CBOE's fining
method for member position limit summary fines in Rule 17.50(g)(1)(b)
so that, for the first three violations within any rolling 12 month
period, 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. For the fourth and succeeding violations in any
twelve month period, CBOE will treat a two consecutive trade date
occurrence as two separate violations. The Exchange Staff will continue
to issue non-disciplinary letters of caution for the first three member
violations in lieu of a fine, so long as the overage does not exceed 5%
of the applicable limit. The proposed rule change also will allow
Exchange staff, in its discretion, for the third violation, to meet
with the member during a non-disciplinary staff interview, in lieu of
issuing a letter of caution.
The Exchange will continue to impose a $1.00 per contract position
limit summary fine for the first through third member position limit
violations when the overage exceeds 5% of the applicable limit and the
fourth through sixth member position limit violations. However, the
proposed rule change will 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. 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.
Finally, CBOE proposed to change to a rolling 12 month period of
review, rather than a calendar year, for multiple position limit
violations occurring in both member and non-member accounts in
subsections (g)(1) (a) and (b) of Exchange Rule 17.50 to implement a
1996 recommendation by the Commission's Office of Compliance
Inspections and Examinations.
II. Discussion
The Commission finds that the proposed rule change is consistent
with Section 6 of the Act in general, and in particular, with Section
6(b)(7) because it provides a fair procedure for the disciplining of
members and persons associated with members in that the revisions to
the fining method for member violations will 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 CBOE for comparable rule violations. The Commission
believes that the proposed role change provides a fair procedure for
[[Page 36855]]
the disciplining of members and persons associated with members in that
it is appropriate to treat two consecutive trade dates of position
limit overage in the same manner as a member with a single trade date
overage for the first three violations. 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. During the initial three violations,
issuing letters of caution or conducting a staff interview should
educate a member to avoid future violations. Thus, the Commission
believes that treating two consecutive trade date occurrences as one
violation is not warranted for the fourth and succeeding violations.
The Commission also believes that using a more graduated scale for
calculation of multiple position limit summary fines may effectively
deter multiple violations. By creating a fining level of $2.50 per
contract between the $1.00 per contract fining level and the $5.00 per
contract fining level, the proposed rule change will deter multiple
position limit violations though the use of increasingly higher fines.
The Commission also finds that using a rolling 12 month period of
review, rather than a calendar year, for multiple position limit
violations occurring in member and non-member accounts will deter
repeat violations. Using the rolling 12 month period to calculate
position limit violations will prevent a firm from repeating multiple
position limit violations at the end of a calendar year and continuing
its position limit violations through the beginning of the succeeding
calendar year without incurring a fine.
The Commission finds good cause for approving Amendment No. 2 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice of the filing of the proposed rule change in the
Federal Register to allow the Exchange to review multiple position
limit violations occurring in non-member accounts under CBOE Rule
17.50(g)(1)(a) using the same rolling 12 month period used for
violations occurring in member accounts under CBOE Rule 17.50(g)(1)(b),
without further delay.
The Commission also believes that Amendment No. 2 does not raise
any significant new issues that require public notice prior to approval
because Amendment No. 2 only changes the Exchange's review period of
multiple position limit violations occurring in non-member accounts to
the same rolling 12 month period used for violations occurring in
member accounts and no comments were received on the substance of the
original proposal. The Commission also believes that delaying for three
months after the approval date of SR-CBOE-97-19 the change to the
rolling 12 month review period for multiple position limit violations
will ensure that any CBOE members have adequate notice prior to the
change from a calendar year to a rolling 12 month period. Accordingly,
the Commission believes it is consistent with Section 6 of the Act to
approve Amendment No. 2 to the proposed rule change on an accelerated
basis.
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 2. 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. 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 the
principal office of the CBOE. All submissions should refer to File No.
SR-CBOE-97-19 and should be submitted by July 30, 1997.
It is therefore Ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change, SR-CBOE-97-19, be, and hereby is,
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-17940 Filed 7-8-97; 8:45 am]
BILLING CODE 8010-01-M
