

[Federal Register: July 12, 2007 (Volume 72, Number 133)]
[Notices]               
[Page 38106-38108]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jy07-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56016; File No. SR-CBOE-2007-77]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Adopt an Interpretation to CBOE Rule 3.19 Regarding 
Temporary Membership Status Pending Final Commission Action on a 
Pending Rule Interpretation Concerning Exercise Right Eligibility

July 5, 2007.
    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 July 2, 2007, 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. 
The Exchange has designated this proposal as one constituting a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule under section 
19(b)(3)(A)(i) of the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ which 
renders the proposal effective upon filing with the Commission. 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. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE proposes to adopt Interpretation and Policy .01 under CBOE 
Rule 3.19 as follows to address the nature and extent of temporary 
membership status to be granted to certain persons in the event that 
the proposed acquisition of The Board of Trade of the City of Chicago, 
Inc. (``CBOT'') by Chicago Mercantile Exchange Holdings Inc. (``CME 
Holdings'') \5\ is consummated before the Commission takes final action 
on CBOE's pending proposed rule change SR-CBOE-2006-106.\6\ The text of 
the proposed Interpretation and Policy is provided below (the 
Interpretation and Policy is completely new, and is therefore 
italicized).
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    \5\ CME Holdings proposes to acquire CBOT by means of a CME 
Holdings merger with CBOT Holdings, Inc. (``CBOT Holdings''), of 
which CBOT is a wholly-owned subsidiary (the ``CME/CBOT 
Transaction'').
    \6\ See Securities Exchange Act Release No. 55190 (January 29, 
2007), 72 FR 5472 (February 6, 2007). The Exchange filed this 
proposed rule change on December 12, 2006. On January 17, 2007, the 
Exchange filed Amendment No. 1 to the proposed rule change. Numerous 
comments were received, and the Exchange responded to those comments 
on June 15, 2007. On June 29, 2007, the Exchange filed Amendment No. 
2 to the proposed rule change.
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Chicago Board Options Exchange, Incorporated
Rules
* * * * *
Rule 3.19. Termination from Membership
    Rule 3.19. No change.

* * * Interpretations and Policies:

    .01 If the proposed merger between Chicago Mercantile Exchange 
Holdings, Inc. and CBOT Holdings, Inc. (``CME/CBOT Transaction''), the 
parent company of the Board of Trade of the City of Chicago, Inc. 
(``CBOT''), is consummated and if such consummation occurs before the 
Securities and Exchange Commission (``Commission'') takes final action 
on SR-CBOE-2006-106, a person who is a member of CBOE (an ``exerciser 
member'') pursuant to paragraph (b) of Article Fifth of the CBOE 
Certificate of Incorporation (``Article Fifth(b)'') as of July 1, 2007 
will be granted temporary membership status at the Exchange, until the 
Commission takes final action on SR-CBOE-2006-106, if and only if such 
person (i) Remains an exerciser member in good standing as of the close 
of business on the trading day immediately before the consummation of 
the CME/CBOT Transaction, (ii) thereafter remains in good standing and 
continues to pay all applicable fees, dues, assessments and other like 
charges that are assessed against CBOE members, and (iii) pays to the 
Exchange,

[[Page 38107]]

for each month starting in the month after the CME/CBOT Transaction is 
consummated, a monthly access fee based on the then current monthly 
lease fees being paid to lessors of the interest that CBOT denominates 
as a full CBOT membership, with such fee to be set by the Exchange on a 
monthly basis based on published lease fee information. Such access fee 
shall be due and payable in advance of each calendar month that the 
person decides to retain the temporary membership status granted 
pursuant to this paragraph. All such access fees shall be payable to 
and held in an interest-bearing escrow account maintained by the 
Exchange until the Commission takes final action on SR-CBOE-2006-106. 
The Exchange will retain such fees if the Commission approves SR-CBOE-
2006-106, and such fees will be returned to the payor if the Commission 
disapproves SR-CBOE-2006-106. The temporary membership status granted 
pursuant to this paragraph shall be subject to the regulatory 
jurisdiction of CBOE under the Act, the Constitution and the Rules, 
including CBOE's disciplinary jurisdiction under Chapter XVII.
* * * * *

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 address whether or to 
what extent persons who claim the right to become and remain a member 
of CBOE (the right to be an ``exerciser member'') pursuant to paragraph 
(b) of Article Fifth of the CBOE Certificate of Incorporation 
(``Article Fifth(b)'') should continue temporarily to retain their CBOE 
membership status after the consummation of the CME/CBOT Transaction 
and before the Commission has taken final action on SR-CBOE-2006-106.
    In SR-CBOE-2006-106, CBOE proposed an interpretation of Article 
Fifth(b) to address the impact of the CME/CBOT Transaction on the 
eligibility of persons to be exerciser members. Under this proposed 
interpretation, the consummation of the CME/CBOT Transaction would 
result in no persons any longer qualifying as members of the CBOT 
within the meaning of Article Fifth(b) and, therefore, would result in 
the elimination of the eligibility of any person thereafter to qualify 
to be an exerciser member. Although SR-CBOE-2006-106 is pending before 
the Commission and awaiting action, there is a risk that the proposed 
CME/CBOT Transaction may be consummated before the Commission is able 
to act on SR-CBOE-2006-106. In particular, the shareholders of CBOT 
Holdings and CME Holdings and the holders of certain CBOT memberships 
are presently scheduled to vote on the proposed transaction on July 9, 
2007.
    If the CME/CBOT Holdings Transaction is consummated, but the 
Commission has not yet taken action on CBOE's interpretation in SR-
CBOE-2006-106 concerning the effect of that transaction on exercise 
right eligibility, CBOE will need to implement a procedure to determine 
whether persons who claim still to qualify as exerciser members should 
be permitted to retain their membership status, and consequently to 
trade on CBOE, while a decision on SR-CBOE-2006-106 is pending. In this 
regard, upon the consummation of the CME/CBOT Transaction, the approval 
of SR-CBOE-2006-106 would mean that former exerciser members have lost 
that membership status. However, if the Commission has not taken final 
action on SR-CBOE-2006-106 when the CME/CBOT Transaction is 
consummated, those persons may maintain that they are still exerciser 
members.
    Interpretation and Policy .01 under CBOE Rule 3.19 deals with these 
extenuating circumstances by allowing certain categories of those 
persons temporarily to retain their membership status while SR-CBOE-
2006-106 remains pending. In particular, under Interpretation and 
Policy .01, persons who were exerciser members in good standing as of 
July 1, 2007 and who remain exerciser members as of the close of 
business on the day before the consummation of the CME/CBOT Transaction 
temporarily would retain their membership status--including their 
trading access to CBOE--until the Commission acts on SR-CBOE-2006-106. 
Such persons would not be required to take any action to retain their 
membership status and would not be required to hold or maintain any 
securities, memberships or other interests in order to maintain that 
status. Rather, the Exchange would determine who was an exerciser 
member as of both of the specified dates and would take appropriate 
action to ensure that those persons retain their membership status 
after that date until the Commission takes final action SR-CBOE-2006-
106. Such persons would be required to remain in good standing and 
would need to pay all applicable fees, dues, assessments and other like 
charges assessed against CBOE members. Of course, this temporary 
membership status would be subject to the regulatory jurisdiction of 
the Exchange under the Exchange Act and the Constitution and Rules of 
the Exchange, including the Exchange's disciplinary jurisdiction under 
Chapter XVII of the Exchange's rules.
    Because such persons would be relieved of the obligation to hold or 
maintain any securities, memberships or other interests in order to 
maintain their membership status, they would be required to pay a 
monthly access fee based on the then current monthly lease fees being 
paid to lessors of the interest that CBOT denominates as a full CBOT 
membership. This monthly access fee would be set by the Exchange on a 
monthly basis, based on published lease fee information, and would be 
payable starting in the month after the month in which the CME/CBOT 
Transaction is consummated and lasting until the Commission takes final 
action on SR-CBOE-2006-106. The Exchange will submit a further proposed 
rule change, pursuant to section 19(b)(3)(A)(ii), to specify the access 
fee to be charged or to specify the methodology by which this access 
fee will be determined. Any subsequent change in the amount of that 
access fee or in the methodology for determining that fee also will be 
submitted as a proposed rule change pursuant to section 
19(b)(3)(A)(ii). Because the Commission would not yet have determined 
whether to approve SR-CBOE-2006-106 during the period that these access 
fees were being collected, all access fees collected under this 
interpretation would be held in an interest-bearing escrow account 
maintained by the Exchange. The Exchange would retain such fees if the 
Commission approved SR-CBOE-2006-106, and such fees would be returned 
to the payor if the Commission disapproved SR-CBOE-2006-106. This 
access fee addresses the competitive advantage that the persons trading 
under the membership status granted in

[[Page 38108]]

Interpretation and Policy .01 otherwise would have over lessees of 
transferable Exchange memberships, in light of the fact that the former 
exerciser members would be relieved of their financial obligation to 
obtain and hold any securities, memberships or other interests in order 
to maintain their membership status.
    Under Interpretation and Policy .01, only persons who were 
exerciser members as of both of the specified dates, not persons who 
might thereafter claim the right to become an exerciser member, would 
have any membership status after the CME/CBOT Transaction, pending the 
Commission's final action on SR-CBOE-2006-106. CBOE Rule 3.19 provides 
CBOE with the authority only to allow persons who actually were members 
to retain their membership status on a temporary basis and does not 
authorize the granting of such status to persons who were not already 
CBOE members.
    Upon the Commission's final action on SR-CBOE-2006-106, 
Interpretation and Policy .01 would cease to be in effect, and the 
rights of persons who claim to be exerciser members would be determined 
in accordance with the Commission's decision on SR-CBOE-2006-106. 
Pursuant to the terms of SR-CBOE-2006-106, there would be a different 
temporary access plan to address transitional issues that would arise 
from the approval of SR-CBOE-2006-106.
    The Exchange believes that Interpretation and Policy .01 is 
reasonable under the circumstances. It avoids disturbing the trading 
access of persons who were exerciser members before the consummation of 
the CME/CBOT Transaction while the Commission is determining whether 
that transaction has extinguished their eligibility to be exerciser 
members. This interpretation also preserves fair and orderly markets at 
CBOE by avoiding the sudden loss of more than 200 persons who presently 
are contributing liquidity to CBOE's markets. So that persons who do 
not have a bona fide interest in trading on CBOE do not exercise in 
reaction to the adoption of Interpretation and Policy .01, a person 
must have been an exerciser not only as of the close of business on the 
day immediately before the consummation of the CME/CBOT Transaction, 
but also as of July 1, 2007, the day immediately before the filing of 
Interpretation and Policy .01. Under SR-CBOE-2006-106, persons would 
have had to be an exerciser member as of December 11, 2006 in order to 
qualify for transitional trading access after the approval of SR-CBOE-
2006-106. Interpretation and Policy .01 therefore effectively extends 
that cut-off date, as it applies to temporary trading access before 
final action on SR-CBOE-2006-106, more than six months to July 1, 2007.

2. Statutory Basis

    The Exchange believes that this filing is consistent with section 
6(b) of the Act,\7\ in general, and furthers the objectives of section 
6(b)(5) of the Act.\8\ In particular, this interpretation is designed 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market, 
and, in general, to protect investors and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \9\ and paragraph (f) of Rule 19b-4 
thereunder.\10\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(1).
    \11\ See 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-CBOE-2007-77 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2007-77. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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. 552, will be available for inspection and 
copying in the Commission's Public Reference Room, on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of the filing also 
will be available for inspection and copying at the principal office of 
the CBOE. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
CBOE-2007-77 and should be submitted on or before August 2, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13490 Filed 7-11-07; 8:45 am]

BILLING CODE 8010-01-P
