[Federal Register Volume 61, Number 153 (Wednesday, August 7, 1996)]
[Notices]
[Pages 41194-41196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20084]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37500; File No. SR-CBOE-96-45]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Board Options Exchange, Incorporated Relating to
Disciplinary Hearing Procedures and Publication of Disciplinary
Decisions
July 30, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
July 10, 1996,\1\ the Chicago Board Options Exchange,
[[Page 41195]]
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 self-regulatory organization. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ On July 25, 1996 the Exchange filed Amendment No. 1 to the
proposed rule change. Amendment No. 1 is a technical amendment
clarifying the language of amended Rule 17.6(b) to include
situations where there are more than two parties to a hearing. See
letter from Arthur B. Reinstein, Senior Attorney, Chicago Board
Options Exchange to Ethan Corey, Special Counsel, Division of Market
Regulation, Commission (July 25, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The CBOE proposes to amend CBOE Rule 17.6 to adopt certain
procedures for hearings in disciplinary cases, and proposes to amend
CBOE Rule 17.9 to codify CBOE's practice regarding the publication of
disciplinary decisions.
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Rule 17.9 to
codify CBOE's practice regarding the publication of disciplinary
decisions, and to amend Rule 17.6 to adopt the following additional
hearing procedures for disciplinary cases: (i) the hearing Panel or the
hearing Panel Chairperson will decide any unresolved pre-hearing issues
at [either] any party's request; (ii) interlocutory review of hearing
Panel decisions is prohibited unless authorized by the hearing Panel;
(iii) the hearing Panel will decide the location of the hearing; (iv)
the Respondent will be permitted to submit a written request to the
hearing Panel asking the Panel to compel the production of non-
privileged documents by the Exchange, a member or associated person, or
the testimony of a member, associated person or a person within the
Exchange's control and; (v) parties must provide a witness list prior
to the scheduled hearing. The Exchange believes that the proposed
procedures, some of which are presently in practice, will improve the
speed, fairness, and efficiency of disciplinary hearings.
Publication of Decisions
It is presently the Exchange's practice to publish summaries of
Business Conduct Committee hearing decisions in the Exchange's Bulletin
after those decisions are final. A decision is considered final after
the CBOE Board of Directors (``Board'') concludes its review of the
decision or after the time for such review has expired. Only the
parties to the case are permitted access to the decision prior to the
time the decision is considered final.\2\ The proposed rule change
would codify this practice.
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\2\ In accordance with CBOE Rule 17.14, decisions are also
reported to the Central Registration Depository prior to the time
the decision is considered final.
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Decisions Regarding Pre-hearing Issues
Pursuant to existing CBOE Rule 17.6(b), the parties to a
disciplinary hearing are to meet in a pre-hearing conference if the
time and the nature of the proceedings permit such a meeting. The
purpose of this pre-hearing conference is to clarify and simplify
issues, and otherwise expedite the proceedings. The parties should
attempt to reach agreement respecting the authenticity of documents,
facts not in dispute, and other items which will serve to expedite the
hearing. Should the parties fail to reach agreement on pre-hearing
issues, Exchange rules do not presently address how those issues will
be resolved. In practice, when such pre-hearing conferences are held,
the hearing Panel or the Chairperson of the hearing Panel decides
contested issues and any other appropriate pre-hearing issues. The
Exchange is proposing to amend Rule 17.6(b) to reflect this practice.
Interlocutory Review
Currently, Exchange rules do not address whether, prior to the
conclusion of a hearing, a Respondent may request Board review of a
decision made by the hearing Panel. The Exchange believes such
interlocutory review would be inefficient and would cause unnecessary
delays in the disciplinary hearing. After the hearing is concluded and
the Business Conduct Committee has issued its decision, a Respondent
may request review of any issue raised during the disciplinary
proceeding. The proposed rule change would provide that interlocutory
Board review of any decision made by the Panel prior to completion is
generally prohibited. Such interluctory review shall be permitted only
if the Panel agrees to such review after determining that the issue is
a controlling issue of rule or policy and that immediate Board review
would materially advance the ultimate resolution of the case.
The Exchange believes this proposed amendment to Rule 17.6(b) will
allow the hearing process to proceed efficiently and on a timely basis.
Hearing Location
Rule 17.6(b) currently provides that the parties will be given 15
days notice of the time and place of the hearing. However, the rules do
not presently address who will decide the hearing location. In
practice, most hearings are held in Chicago at the Exchange's offices.
However, the Exchange believes that the hearing Panel should have the
authority to decide where the hearing will take place. It could be that
a location outside of Chicago is more appropriate. The proposed rule
change would amend Rule 17.6(b) to provide that the hearing Panel may
decide to hold a hearing outside Chicago to accommodate the parties,
witnesses, Exchange staff or the Panel members.
Hearing Witnesses and Documents
Rule 17.6(c) presently provides that the hearing Panel may request
the production of documentary evidence and witnesses. This rule also
provides that no member or person associated with a member shall refuse
to furnish relevant testimony, documentary materials or other
information requested by the Panel.\3\ Pursuant to Rule 17.2(b),
Exchange staff many require a member or associated person to testify at
a hearing or to produce documents. There is currently no procedure for
a Respondent to compel a member or associated person to testify at a
hearing or to produce documents. According to the present hearing
procedures, a Respondent lacks the right to compel a particular member
to testify or produce documents in order to defend a disciplinary case
if that member does not voluntarily cooperate.
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\3\ The proposed rule change would move the language regarding
the Panel's power to request the production of documentary evidence
and witnesses from Rule 17.6 subsection (c) to the proposed
subsection (d) so that the topics of documents and witnesses are
addressed in one subsection of Rule 17.6. This language has been
slightly revised to clarify that the Panel does not have to wait
until during the hearing to make its request.
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Pursuant to Rule 17.4(c), a Respondent has access to non-privileged
documents in the Exchange's investigative file. However, a Respondent
has no right to compel
[[Page 41196]]
Exchange staff to produce documents not in the investigative file, nor
does a Respondent have the right to require Exchange employees to
appear as witnesses at a hearing.
The proposed rule change provides that if the Exchange, a member or
a person associated with a member will not voluntarily produce non-
privileged documents or hearing witnesses the Respondent has requested,
the Respondent may submit a written request to the Panel asking the
Panel to enter an order compelling the production of such non-
privileged documents or compelling the testimony of the member,
associated person, or a person within the Exchange's control.
To obtain such an order from the hearing Penal, a Respondent would
need to demonstrate that the witnesses and documents requested are
relevant and material to the Respondent's case. Before the hearing
Penal enters its order, Exchange staff would have the opportunity to
argue why no such order should be issued. In making their decision
whether to issue the requested order, the hearing Panel would have to
weigh the probative value of the evidence against considerations such
as undue delay, waste of time, confusion, unfair prejudice or needless
presentation of cumulative evidence. The hearing Panel could require
the Respondent who requested the order to pay the witness's travel
expenses or other costs of complying with the order.
Witness List
Rule 17.6(b) presently provides that not less than five business
days in advance of a hearing, each party will furnish the Panel and the
other parties copies of all documentary evidence such party intends to
present at a hearing. The proposed rule change would also require that
parties to provide a list of witnesses they intend to present at a
hearing. The Exchange believes this additional requirement will make
the hearing run more efficiently as both sides will know in advance
which witnesses will testify and be available for cross examination.
2. Statutory Basis
The proposed rule change is consistent with and furthers the
objectives of Section 6(b)(7) of the Act by providing fair procedures
for hearings in disciplinary cases brought against members and persons
associated with members.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
The Exchange has neither solicited nor received written comments on
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 self-regulatory organization consents, the Commission will:
(A) by order approve the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested copies 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 at
the Commissions 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-96-45 and should
be submitted by August 28, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-20084 Filed 8-5-96; 8:45 am]
BILLING CODE 8010-01-M
