
[Federal Register: April 17, 2008 (Volume 73, Number 75)]
[Notices]               
[Page 20989-20994]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ap08-105]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57650; File No. SR-CBOE-2008-40]

 
Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change To Provide for 
Issuance of Interim Trading Permits

April 11, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on April 9, 2008, 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 CBOE. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    CBOE is filing this proposed rule change to provide for the 
issuance of up to 50 Interim Trading Permits.\3\ The text of the 
proposed rule change is available on CBOE's Web site (http://
www.cboe.org/Legal), at CBOE's Office of the Secretary, and at the 
Commission's Public Reference Room.
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    \3\ Under Sections 2.1(a) and 12.1 of its Constitution, CBOE 
must obtain, but has not yet obtained, membership approval for the 
issuance of the Interim Trading Permits and the amendments to its 
Constitution contemplated in this proposed rule change. Once it has 
obtained that membership approval, CBOE plans to file a technical 
amendment to this proposed rule change to reflect that approval.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, CBOE included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed

[[Page 20990]]

rule change. The text of these statements may be examined at the places 
specified in Item IV below. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is filing this proposed rule change to provide for the 
issuance of up to 50 Interim Trading Permits. These permits will grant 
the same trading privileges on the Exchange as transferable Exchange 
memberships. The Exchange is seeking the authority to issue these 
permits to address the demand for trading access to the Exchange to the 
extent that a shortage exists from time to time in the number of 
transferable Exchange memberships available for lease. Issuances of 
Interim Trading Permits under Proposed Rule 3.27(b).
    Under proposed Rule 3.27(b), the Exchange may issue one or more 
Interim Trading Permits, subject to the limit on the number of such 
permits, to address shortages in the number of transferable memberships 
available for lease. Consistent with this purpose, such permits may be 
issued only if the Exchange determines in its sole discretion that 
there are insufficient transferable Exchange memberships available for 
lease at that time at a rate reasonably related to the indicative lease 
rate to meet existing demand for such leases,\4\ and that it would be 
in the interest of fair and orderly markets to provide additional 
trading access under the circumstances (collectively, the ``issuance 
findings'').\5\
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    \4\ The ``indicative lease rate'' will be the highest ``clearing 
firm floating monthly rate'' of the Clearing Members that assist in 
facilitating at least 10% of the transferable membership leases. The 
``clearing firm floating monthly rate'' will be the floating rate 
that a Clearing Member designates, in connection with transferable 
membership leases that the Clearing Member assisted in facilitating, 
for leases that utilize that monthly rate. This is based on the 
method the Exchange currently is using to determine the access fee 
for persons who are Temporary Members under Interpretation and 
Policy .02 of Rule 3.19. See, e.g., Securities Exchange Act Release 
No. 57411 (March 3, 2008), 73 FR 12478 (March 7, 2008) (notice of 
filing and immediate effectiveness of File No. SR-CBOE-2008-25).
    \5\ The reference to this last finding does not imply that the 
Exchange's markets might not be fair and orderly if there were 
insufficient permits to satisfy completely the additional demand for 
trading access. Instead, this finding ensures that additional 
permits are not issued--regardless of the extent of such demand--if 
the issuance of such permits would be contrary to the interests of a 
fair and orderly market.
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    In the event that circumstances justify the issuance findings and 
the Exchange consequently determines to issue Interim Trading Permits, 
the Exchange will announce the number of Interim Trading Permits that 
the Exchange determines to make available (limited by the number that 
are available for issuance), that the Exchange is taking applications 
for such permits, the process the Exchange will follow in issuing such 
permits (described in the bullets below), and the beginning and ending 
dates during which period of time individuals and organizations must 
submit applications for such permits. An individual or organization 
must be approved and satisfy all requirements for membership in the 
Exchange to be eligible to apply for an Interim Trading Permit to be 
issued under proposed Rule 3.27(b). In addition, an individual will be 
eligible to receive no more than one Interim Trading Permit in 
connection with a particular issuance of Interim Trading Permits 
pursuant to proposed Rule 3.27(b), with a maximum of eight such permits 
for a member organization and individuals and member organizations 
affiliated with the member organization in connection with that 
issuance.
    Each issuance of Interim Trading Permits pursuant to proposed Rule 
3.27(b) will occur in accordance with one of the following objective 
processes:
     Random Lottery Process. After the deadline for 
applications has passed, the Exchange, through a random lottery 
process, will issue a number of Interim Trading Permits to applicants 
equal to the number of Interim Trading Permits that the Exchange 
announced it would make available.
     Order in Time Process. After the deadline for applications 
has passed, the Exchange will issue an Interim Trading Permit to each 
applicant who applied for such a permit in the order in time that such 
applicant applied, until the number of Interim Trading Permits that the 
Exchange announced it would make available have been issued.
     Other Process. The Exchange will have the authority to 
modify the processes described above or to establish any other process 
to issue Interim Trading Permits pursuant to a rule filing submitted to 
the Commission under Section 19(b) of the Exchange Act.\6\
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    \6\ 15 U.S.C. 78s(b).
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    The Exchange believes that these processes will provide for the 
issuance of Interim Trading Permits in an objective manner and 
consequently will provide for fair access to the Exchange. At the same 
time, the Exchange will have the flexibility to determine which process 
it will follow in connection with a particular issuance of permits. The 
Exchange believes that this flexibility is needed to allow it to 
determine the most efficient way to issue Interim Trading Permits in 
any given situation.
    Overall, the Exchange believes that the ability to issue Interim 
Trading Permits provides the Exchange with the ability to address, from 
time to time, situations in which the demand for full trading access to 
the Exchange exceeds the supply of transferable memberships available 
for lease. In light of that justification, proposed CBOE Rule 3.27(b) 
only allows Interim Trading Permits to be issued in circumstances when 
the Exchange is able to make the issuance findings. Increasing the 
number of market participants in that situation should promote market 
liquidity and help promote the fair and orderly character of CBOE's 
markets.
Requirements for Maintaining Interim Trading Permits
    Recipients of Interim Trading Permits and all of their associated 
persons must remain in compliance with paragraph (f) of proposed CBOE 
Rule 3.27. In particular, subparagraph (f)(ii) of proposed CBOE Rule 
3.27 provides that they must remain in good standing and must pay all 
applicable fees, dues, assessments and other like charges assessed 
against CBOE members. Further, subparagraph (f)(i) of proposed CBOE 
Rule 3.27 provides that holders of Interim Trading Permits and all of 
their associated persons are 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.\7\
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    \7\ In this regard, for instance, Interim Trading Permits may be 
suspended or revoked as a result of a disciplinary action under the 
amendments proposed for Rule 17.1.
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    In addition, holders of Interim Trading Permits must pay to the 
Exchange a monthly access fee. This monthly access fee will be 
established and adjusted through proposed rule change(s) that will be 
filed with the Commission under Section 19(b)(3)(A) of the Act.\8\ The 
monthly access fee will be due and payable in accordance with the 
provisions of the Exchange Fee Schedule and will be the same for all 
Interim Trading Permit holders.
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    \8\ 15 U.S.C. 78s(b)(3)(A).

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[[Page 20991]]

Nature of Rights Under Interim Trading Permits
    As provided in subparagraph (e)(i) of proposed CBOE Rule 3.27, the 
holder of an Interim Trading Permit will enjoy the same trading 
privileges on the Exchange as the holder of a transferable Exchange 
membership. Those rights include the right to trade on the CBOE Stock 
Exchange (``CBSX'') and, as provided in Rule 3.29, the trading rights 
on the Exchange necessary to become a member of OneChicago, LLC. This 
subparagraph also provides that an organization that holds an Interim 
Trading Permit or that has an Interim Trading Permit registered for it 
shall be treated the same as a ``member organization'' for purposes of 
the Rules.\9\ As provided in subparagraph (g)(iii) of proposed CBOE 
Rule 3.27, an Interim Trading Permit will be non-transferable, except 
that in a form and manner prescribed by the Exchange (1) a member 
organization may change the designation of the nominee in respect of 
each Interim Trading Permit it holds, and (2) an individual Interim 
Trading Permit holder at any time after the issuance of that Interim 
Trading Permit may transfer that Interim Trading Permit to a member 
organization with which such individual is then associated.
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    \9\ The Exchange notes that this provision is limited to the 
Rules and is subject to the conditions imposed on Interim Trading 
Permit holder status in the Constitution and Rules, including 
proposed Section 1.1(b) of the Constitution and proposed Rule 
3.27(e)(i).
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    Under proposed Section 2.6 of the Constitution and subparagraph 
(g)(i) of proposed CBOE Rule 3.27, Interim Trading Permit holders will 
have the same voting and petition rights as regular members, except 
that Interim Trading Permit holders will have no right to vote or 
petition concerning (1) issues that relate to Exchange ownership 
matters, including without limitation those matters related to 
demutualization, mergers, consolidations, dissolution, liquidation, 
transfer, or conversion of assets of the Exchange, and (2) matters that 
relate to Article Fifth(b).\10\ Similarly, under proposed Section 
2.1(c) of the Constitution and subparagraph (g)(ii) of proposed CBOE 
Rule 3.27, Interim Trading Permit holders will have no interest in the 
assets or property of the Exchange, and will have no right to share in 
any distribution by the Exchange.\11\
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    \10\ Under proposed Section 1.1(b) of the Constitution and 
proposed Rule 3.27(e)(i), Interim Trading Permit holders in good 
standing would be treated the same as members, except as provided in 
proposed Sections 2.1(c) and 2.6 of the Constitution, and except for 
purposes of paragraph (b) of Article Fifth of the Certificate of 
Incorporation, Article Tenth of the Certificate of Incorporation, 
proposed Section 4.1(a) of the Constitution, proposed Section 6.1(a) 
of the Constitution, and as may be provided in the Rules. Proposed 
Rule 3.27(e)(i) further provides that Interim Trading Permit holders 
would be treated the same as members (except as described in the 
preceding sentence) notwithstanding any references in the Rules 
suggesting that Interim Trading Permit holders are members under the 
Rules.
    \11\ The Exchange notes that the provisions described in this 
paragraph and the following paragraph addressing the voting and 
representation rights of Interim Trading Permit holders are 
virtually identical to the provisions addressing the voting and 
representation rights provided to CBSX Permit holders that were 
approved by the Commission in connection with a previous Exchange 
rule filing. See Securities Exchange Act Release No. 55326 (February 
21, 2007), 72 FR 8816 (February 27, 2007) (order approving File No. 
SR-CBOE-2006-107). The Exchange also notes that proposed CBOE Rule 
3.27 is similar to the CBSX Permit holder rule, CBOE Rule 3.26, 
which the Commission approved in connection with that filing.
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    To address the fair representation requirements in Section 6(b)(3) 
of the Exchange Act,\12\ proposed Section 4.1(a) of the Constitution 
provides that an Interim Trading Permit holder, or an officer of an 
Interim Trading Permit holder, will be eligible to serve on the 
Nominating Committee in one of the six floor member and firm member 
positions on the Nominating Committee, notwithstanding the fact that 
the holder of an Interim Trading Permit is not a regular member or an 
officer of a regular member. In addition, under proposed Section 6.1(a) 
of the Constitution, an Interim Trading Permit holder or the executive 
officer of an Interim Trading Permit holder will be eligible to serve 
in one of the at-large director positions on the Board of Directors of 
the Exchange.\13\ To clarify that an Interim Trading Permit holder will 
be able to serve only as an at-large director, proposed Rule 
3.27(h)(iii) provides that the holding of an Interim Trading Permit 
does not satisfy the requirement in Section 6.1(a) of the Constitution 
to own and control a membership for purposes of the definitions of 
floor director and lessor director in that section. Finally, proposed 
Rule 3.27(e)(i) provides that, except as provided in the Constitution, 
an Interim Trading Permit holder will be eligible to serve on any 
Exchange committee to the same extent that a member can serve on that 
committee.
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    \12\ 15 U.S.C. 78f(b)(3).
    \13\ The Exchange also proposes to amend Section 6.1(a) to 
remove references to a transitional period that are no longer needed 
because that period has passed.
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Duration of Interim Trading Permits and Transfer of Interim Trading 
Permit Holders to Open Leases
    As provided in paragraph (c) of proposed CBOE Rule 3.27, an Interim 
Trading Permit will remain in effect until the earlier of one of the 
following events: (i) A transaction is consummated pursuant to which 
either CBOE is converted into a stock corporation or memberships in 
CBOE are converted into stock (collectively, a ``Demutualization 
Transaction''), (ii) the holder of the Interim Trading Permit notifies 
the Exchange in a form and manner prescribed by the Exchange that the 
holder is terminating that Interim Trading Permit, (iii) the Interim 
Trading Permit is terminated as a result of a regulatory action by the 
Exchange,\14\ or (iv) the Exchange terminates all Interim Trading 
Permits through a rule filing approved by the Commission pursuant to 
Section 19(b) of the Act.\15\ Subparagraph (e)(ii) of proposed Rule 
3.27 provides that, in the event of a Demutualization Transaction, 
holders of Interim Trading Permits will be guaranteed to receive 
trading permits on the same terms as holders of transferable Exchange 
memberships who are eligible to receive trading permits in connection 
with that transaction. This guarantee ensures that there is no 
disruption in trading access in the event of such a Demutualization 
Transaction and thereby helps promote the fair and orderly character of 
the Exchange's markets and helps ensure that holders of Interim Trading 
Permits are treated fairly in such a transaction and are not unfairly 
deprived of trading access to the Exchange.
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    \14\ For example, an Interim Trading Permit may be revoked as a 
result of a disciplinary action under the amendments proposed for 
Rule 17.1.
    \15\ 15 U.S.C. 78s(b).
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    Because Interim Trading Permits can be issued to provide trading 
access under specified conditions, those permits should continue to be 
available for those purposes if they no longer are being used by their 
original recipients. Accordingly, paragraph (c) of proposed Rule 3.27 
provides that the Exchange may reissue an Interim Trading Permit that 
has been terminated. This paragraph also incentivizes holders to 
terminate their permits early in the month so that the Exchange is in a 
position to reissue those permits at the end of the month. In 
particular, this paragraph requires a holder of an Interim Trading 
Permit, if the holder fails to notify the Exchange that the holder is 
terminating that Interim Trading Permit by the fifteenth day of the 
month, to pay to the Exchange an amount equal to the following month's 
monthly access fee for an Interim Trading Permit.
    Under paragraph (d) of proposed Rule 3.27, the Exchange will 
endeavor to

[[Page 20992]]

facilitate the transfer of holders of Interim Trading Permits to 
transferable memberships that are available for lease. In connection 
with determining to issue Interim Trading Permits, the Exchange sought 
and received oral feedback from the Exchange's Lessors Committee. 
Certain participants on that committee expressed the concern that the 
issuance of Interim Trading Permits potentially could have a negative 
affect on the lease market by reducing the demand for leases. This 
transfer provision is designed to address that concern.
    In particular, paragraph (d) of proposed Rule 3.27 will be 
triggered if the Exchange is notified by one or more lessors that they 
have transferable Exchange memberships available for lease (``open 
leases'') at a rate reasonably related to the indicative lease rate, as 
determined by the Exchange in its sole discretion. It could distort the 
lease market for Interim Trading Permits to be outstanding while open 
leases are available at such a rate, so it is appropriate for the 
Exchange to endeavor to facilitate the transfer of holders of Interim 
Trading Permits to those open leases.
    Accordingly, paragraph (d) of proposed Rule 3.27 provides that, in 
the event the Exchange receives notifications from lessors that they 
have open leases, the Exchange will notify each Interim Trading Permit 
holder of the number of open leases and the names of the lessors with 
those open leases. As part of that notification by the Exchange, the 
Exchange will advise each Interim Trading Permit holder that the holder 
may contact those lessors if the holder is interested in transferring 
to an open lease.\16\ The Exchange notes that a transfer to an open 
lease is entirely voluntary for Interim Trading Permit holders.\17\
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    \16\ The Exchange also will provide such a notification to each 
person who is a Temporary Member under Interpretation and Policy .02 
of Rule 3.19.
    \17\ The Exchange also notes that a transfer to an open lease is 
entirely voluntary for Temporary Members.
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    If, after a reasonable period of time following this process, a 
lessor notifies the Exchange that the lessor continues to have an open 
lease, the Exchange shall compensate that lessor through a monthly 
payment equal to the indicative lease rate, provided that lessor is 
offering for lease the transferable membership subject to the open 
lease at a rate reasonably related to the indicative lease rate, as 
determined by the Exchange in its sole discretion.\18\ If the 
indicative lease rate changes, the Exchange may modify that monthly 
payment from time to time so that the payment is equal to that rate. 
The Exchange has included this compensation provision to address the 
potential impact that Interim Trading Permits may have on the lease 
market. As mentioned above, certain participants on the Lessors 
Committee vocalized concern that Interim Trading Permits potentially 
could negatively affect the lease market by reducing demand for leases. 
The Exchange believes that this provision is designed to address that 
concern.
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    \18\ The ``indicative lease rate'' will be determined in 
accordance with proposed Rule 3.27(b). See supra note 4.
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    In the event the Exchange compensates a lessor in this situation, 
the Exchange will not enter into, nor be deemed to have entered into, a 
lease or other agreement with that lessor. Accordingly, the Exchange 
will have no rights with respect to that lessor's membership, including 
without limitation the right to trade on the Exchange or the right to 
vote. The lessor may at any time thereafter lease that membership to 
any qualified individual or organization and will be required to notify 
the Exchange in the event of such a lease. The Exchange will cease 
compensating the lessor if it receives such a notification or otherwise 
learns the lessor has leased that membership, and may recoup from the 
lessor any compensation paid pursuant to proposed Rule 3.27(d) to the 
lessor for any period of time during which the lessor has leased that 
membership. The Exchange has added this provision to clarify that it 
will have no rights with respect to that membership, and that a lessor 
may enter into a lease agreement at any time.
    The Exchange also may cease compensating that lessor if the 
Exchange learns an offer to lease that membership at a rate reasonably 
related to the indicative lease rate, as determined by the Exchange in 
its sole discretion, has been declined by that lessor. This provision 
has been added to provide that lessor with an incentive to lease that 
membership if the opportunity arises. Consistent with the purpose of 
this transfer provision to assist in filling open leases, the Exchange 
does not want to be in a position of perpetually compensating certain 
lessors in the event they have opportunities to lease their 
memberships.
    Finally, in the event that the number of lessors receiving 
compensation pursuant to this provision becomes greater than the number 
of outstanding Interim Trading Permits, the Exchange will compensate 
each such lessor, on a monthly basis, in an amount equal to the current 
indicative lease rate, as determined by the Exchange in its sole 
discretion, times the number of holders of such permits divided by the 
number of such lessors.\19\ The Exchange believes this provision is 
necessary to address the scenario in which the number of open leases 
exceeds the number of Interim Trading Permits. Under this scenario, the 
number of open leases over-and-above the number of outstanding permits 
would indicate a lack of demand for trading access to the Exchange 
beyond what is being satisfied by Interim Trading Permits. Any 
compensation the Exchange may pay pursuant to proposed Rule 3.27(d) is 
not intended to be a substitute for that lack of demand for trading 
access, and therefore the Exchange has determined in this scenario to 
compensate lessors on a pro-rata basis from fees paid by Interim 
Trading Permit holders.
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    \19\ As a corollary to this provision, the Exchange will cease 
compensating such lessors during any period when there are no 
Interim Trading Permits currently outstanding.
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Conforming Changes
    The Exchange has made certain conforming changes in its Rules to 
ensure that individuals and organizations that receive Interim Trading 
Permits under proposed Rule 3.27 can conduct their activities in a 
manner similar to holders of Exchange memberships. In particular, 
subparagraph (h)(ii) of proposed Rule 3.27 provides that an individual 
Interim Trading Permit holder will have the same ability to register 
that Interim Trading Permit for a member organization as the holder of 
an Exchange membership has to register that membership for a member 
organization under Rule 3.8(c). In addition, that same subparagraph 
provides that all Rules that apply to an individual member registering 
a membership for a member organization, or that apply to a member 
organization that has a membership registered for it, shall also be 
deemed to apply to an individual Interim Trading Permit holder who has 
registered that Interim Trading Permit for a member organization, and 
to a member organization that has an Interim Trading Permit registered 
for it. Rule 3.8 also has been amended to allow member organizations 
holding Interim Trading Permits to designate individual nominees and 
inactive nominees with respect to those permits.

[[Page 20993]]

    Similarly, subparagraph (h)(i)(A) of proposed Rule 3.27 provides 
that an Interim Trading Permit will be counted as one membership for 
purposes of the Participation Entitlement provisions in Rule 
6.45A(a)(i)(C)(1) and Rule 6.45B(a)(ii)(C)(1). In addition, 
subparagraph (h)(i)(B) of proposed Rule 3.27 provides that an Interim 
Trading Permit will be counted as one membership for purposes of the 
appointment costs provisions in Rule 8.3(c)(v), Rule 8.85(e) and Rule 
8.92(d). Notwithstanding the similar treatment of an Interim Trading 
Permit and a membership for these purposes, subparagraph (h)(i)(A)-(B) 
also provide that an Interim Trading Permit will not satisfy the 
requirements in Rule 8.85(e) and Rule 8.92(d) that a DPM or an e-DPM 
own at least one membership.\20\ This is consistent with the original 
purpose of the DPM and e-DPM membership ownership requirement, which 
was to require that DPMs and e-DPMs own, instead of lease, at least one 
Exchange membership in order to ensure that they have a long-term 
commitment to the Exchange. As discussed above, an Interim Trading 
Permit holder will have no interest in the assets or property of the 
Exchange, and will have no right to share in any distribution by the 
Exchange.
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    \20\ Proposed Interpretation and Policy .04 of Rule 8.85 and 
proposed Interpretation and Policy .01 of Rule 8.92 specifically 
provide that an Interim Trading Permit does not satisfy the 
membership ownership requirements in those Rules.
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    In order further to assure that holders of Interim Trading Permits 
can conduct their trading activities in a manner similar to the holders 
of Exchange memberships, subparagraph (h)(i)(C) of proposed Rule 3.27 
provides that an Interim Trading Permit will be treated as a separate 
membership for purposes of the pilot programs referenced in Rule 
8.3(c)(vii)(1), Rule 8.3(c)(vii)(2), Rule 8.85(a)(v), Rule 8.93(vii), 
and subparagraph (b)(viii) of the Guidelines for Exemptive Relief Under 
Rule 8.91(e) for Members Affiliated with DPMs. These pilot programs 
allow one Market-Maker affiliated with another Market-Maker, an Off-
Floor DPM or an e-DPM to trade in open-outcry in any specific option 
class allocated to that Market-Maker, Off-Floor DPM or e-DPM, provided 
such Market-Maker trades on a separate membership. Further, 
subparagraph (h)(i)(D) of proposed Rule 3.27 provides that an 
individual Interim Trading Permit holder may satisfy the qualification 
requirements to be a DPM Designee or SBT DPM Designee as set forth in 
Rule 8.81(b)(ii) and Rule 44.11(b)(2) by registering the Interim 
Trading Permit for a DPM or SBT DPM or an affiliate of the DPM or SBT 
DPM. This subparagraph also provides that a DPM may satisfy the 
requirement in Rule 8.81(d) by having DPM Designees who have registered 
their Interim Trading Permits for the DPM.
    Other conforming changes have been made to the Rules such that 
certain requirements related to the holders of memberships will apply 
to the holders of Interim Trading Permits. In particular, under 
proposed Rule 3.2(c), individual Interim Trading Permit holders will be 
required to have authorized trading functions. In addition, proposed 
Rule 3.3(c) provides that the holding of an Interim Trading Permit 
satisfies the requirement in that Rule that Clearing Members and order 
service firms possess at least one membership. Further, under proposed 
Rule 3.19, the membership status of an Interim Trading Permit holder 
will automatically terminate at such time that person, among other 
things, does not hold an Interim Trading Permit. Under this rule, the 
Exchange also will have the authority to permit such a person to retain 
that membership status under certain circumstances to enable that 
person to obtain, among other things, another Interim Trading Permit 
(subject to the requirements in proposed Rule 3.27). Also, individual 
Interim Trading Permit holders under proposed Rule 3.24 will be 
eligible for the member death benefit.
    Finally, the Rules have been amended to preserve the Exchange's 
regulatory authority under the Exchange Act and the Constitution and 
Rules of the Exchange. In particular, the Exchange will have the 
authority under proposed Rule 2.23 to revoke an Interim Trading Permit 
if the holder fails to pay any dues, fees, assessments, charges, fines, 
or other amounts due to the Exchange within six months after such 
payment is due. In addition, the Exchange will have the authority under 
proposed Rules 16.3(c) and 16.4 to suspend or revoke the Interim 
Trading Permit of a holder that experiences financial difficulty. The 
Exchange also will have the authority under proposed Rule 17.1 to 
suspend or revoke an Interim Trading Permit if the holder has been 
disciplined by the Exchange.
Clarifying Changes Related to CBOE Stock Exchange Permits
    In amending the Constitution and Rules to provide for the issuance 
of Interim Trading Permits, the Exchange determined to make certain 
changes to clarify how CBOE Stock Exchange Permits currently are 
treated under the Certificate of Incorporation, Constitution, and 
Rules. The Exchange believes that these changes are non-substantive in 
nature because they make explicit the way CBOE Stock Exchange Permits 
and the holders of such permits currently are treated and do not modify 
the rights of the holders of such permits.
    In particular, the Exchange has amended Section 1.1 of the 
Constitution to specifically provide that, rather than being defined as 
members, CBOE Stock Exchange Permit holders will be treated the same as 
members, except as provided in Sections 2.1(d) and 2.6 of the 
Constitution, and except for purposes of paragraph (b) of Article Fifth 
of the Certificate of Incorporation, Article Tenth of the Certificate 
of Incorporation, Section 4.1(a) of the Constitution, Section 6.1(a) of 
the Constitution, and as may be provided in the Rules. The Exchange 
also is proposing a conforming amendment in Rule 3.26(c) to provide 
that CBOE Stock Exchange Permit holders are treated the same as members 
(except as described above), rather than being ``deemed'' members, for 
purposes of the Certificate of Incorporation, Constitution, and Rules. 
Similarly, the Exchange is proposing to amend this paragraph to provide 
that CBOE Stock Exchange Permit holders shall be treated the same as 
members (except as described above) notwithstanding any references in 
the Rules suggesting that CBOE Stock Exchange Permit holders are 
members under the Rules. In addition, the Exchange is proposing to 
amend this paragraph to clarify that an organization that holds a CBSX 
Permit or that has a CBSX Permit registered for it shall be treated the 
same as a ``member organization'' for purposes of the Rules. Further, 
the Exchange is proposing to amend Rule 3.26(e)(i) to clarify that the 
holding of a CBSX Permit does not satisfy the requirement in Section 
6.1(a) of the Constitution to own and control a membership for purposes 
of the definitions of floor director and lessor director in that 
section.
    The Exchange also has proposed to amend Rule 2.23 to clarify that 
the Exchange has the authority to revoke a CBOE Stock Exchange Permit 
if the holder fails to pay any dues, fees, assessments, charges, fines, 
or other amounts due to the Exchange within six months after such 
payment is due. Similarly, the Exchange has proposed to amend Rules 
16.3(c) and 16.4 to clarify that the Exchange has the authority to 
suspend or revoke the CBOE Stock Exchange Permit of a holder that 
experiences financial difficulty. The Exchange also is clarifying that 
it has the authority under proposed Rule 17.1 to suspend or revoke a 
CBOE Stock

[[Page 20994]]

Exchange Permit if the holder has been disciplined by the Exchange.
    Further, the Exchange is proposing to amend Rule 3.2 to clarify 
that individuals holding CBOE Stock Exchange Permits are required to 
have authorized trading functions in accordance with Rule 50.3. In 
addition, the Exchange is proposing to amend Rule 3.19 to clarify that 
the membership status of a CBOE Stock Exchange Permit holder will 
automatically terminate at such time that person, among other things, 
does not hold a CBOE Stock Exchange Permit. Rule 3.19 also is being 
amended to clarify that the Exchange would have the authority to allow 
such a person to retain that membership status under certain 
circumstances to enable that person to obtain, among other things, 
another CBOE Stock Exchange Permit (subject to the requirements in Rule 
3.26).
2. Statutory Basis
    For the reasons described above, the Exchange believes that the 
proposed rule change is consistent with Section 6(b) of the Exchange 
Act, in general, and furthers the particular objectives of Section 
6(b)(5) of the Exchange Act.\21\ In particular, the proposed rule 
change 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.\22\
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    \21\ 15 U.S.C. 78f(b) and (b)(5).
    \22\ See 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE 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

    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 Exchange 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 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-2008-40 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-2008-40. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such 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-2008-40 and should be 
submitted on or before May 8, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E8-8278 Filed 4-16-08; 8:45 am]

BILLING CODE 8010-01-P
