
[Federal Register: August 20, 2009 (Volume 74, Number 160)]
[Notices]
[Page 42139-42140]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20au09-95]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60488; File No. SR-CBOE-2009-037]


Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Approving Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2 Thereto, To Amend Its Minor Rule Violation Plan

August 12, 2009.
    On June 4, 2009, 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\ and Rule 19b-4
thereunder,\2\ a proposed rule change amending CBOE Rule 17.50 (Minor
Rule Plan) (``MRP'') to incorporate additional violations into the MRP,
increase the sanctions for certain violations, to make other minor
changes, and to make changes to the trading and decorum violations. On
June 17, 2009, the Exchange filed Amendment No. 1 to the proposed rule
change to make non-substantive, technical edits to the rule text
submitted as Exhibit 5 to SR-CBOE-2009-037. On June 23, 2009, the
Exchange filed Amendment No. 2 to the proposed rule change making
corrections to the description of the changes submitted in Amendment
No. 1. The proposed rule change, as amended, was published for comment
in the Federal Register on July 6, 2009.\3\ The Commission received no
comments on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 60177 (June 25, 2009),
74 FR 32015.
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    The Exchange has proposed to make additional rules subject to
punishment under its the MRP. These rules relate to: (1) Exercise
limits (Rule 4.12); (2) trading in restricted classes (Rule 5.4); (3)
linkage violations (Rules 6.83 and 6.84); (4) market maker quoting
obligations (Rules 8.7, 8.15A, 8.85, and 8.93); (5) failure to
accurately report position and account information (Rule 4.13); (6)
failure to designate a person or persons responsible for implementing
and monitoring a member's anti-money laundering compliance program
(Rule

[[Page 42140]]

4.20); (7) failure to provide prior capital withdrawal notice (Rule
15c3-1(e) under the Act); and (8) failure to provide post capital
withdrawal notice (Rule 15c3-1(e) under the Act). The Exchange believes
that it will be able to carry out its regulatory responsibility more
quickly and efficiently by incorporating these violations into its MRP.
    The Exchange has also proposed to increase the fine levels for
certain violations.\4\ The Exchange believes that the current fine
levels for such violations are too low, given the serious nature of
such offenses, and that the proposed increases are necessary to be an
effective deterrent against future violations and a just penalty for
such violations. Furthermore, the Exchange has proposed to extend the
surveillance period for many of the violations to a 24-month rolling
period from a 12-month period.\5\ The Exchange believes that increasing
the surveillance period will serve as an effective deterrent to future
violative conduct. The Exchange also proposed a few other technical
corrections to its MRP.
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    \4\ The proposed increased fines would apply to the following
violations: (1) Failure to respond in a timely manner to a request
for automated submission of trade data (``Blue Sheets'') (Rule
15.7); (2) failure of a floor broker or market maker to honor the
firm quote requirements (Rule 8.51), to honor the priority of
marketable customer orders maintained in the Customer Limit Order
Book (Rule 6.45), and to use due diligence in the execution of
orders for which the floor member maintains an agency obligation
(Rule 6.73); and (3) violations of exercise and exercise advice
rules for American-style, cash-settled index options (Rule 11.1,
Interpretation and Policy .03).
    \5\ The violations that will have a 24-month rolling period are:
(1) Violation of exercise and position limits (Rule 4.11 and 4.12);
(2) failure to respond in a timely manner to a request for automated
submission of trade data (``Blue Sheets'') (Rule 15.7); (3) failure
of a floor broker or market maker to honor the firm quote
requirements (Rule 8.51), to honor the priority of marketable
customer orders maintained in the Customer Limit Order Book (Rule
6.45), and to use due diligence in the execution of orders for which
the floor member maintains an agency obligation (Rule 6.73); (4)
failure to submit trade data on trade date (Rule 6.51); (5)
violations of exercise and exercise advice rules for American-style,
cash-settled index options (Rule 11.1, Interpretation and Policy
.03); (6) communications to the Exchange or the clearing corporation
(Rule 4.22); (7) trading in restricted classes (Rule 5.4); (8)
linkage violations (Rules 6.83 and 6.84); (9) failure to meet
Exchange quoting obligations (Rules 8.7, 8.15A, 8.85, and 8.93);
(10) failure to accurately report position and account information
(Rule 4.13); (11) failure to provide prior capital withdrawal notice
(Rule 15c3-1(e) under the Act); (12) failure to provide post capital
withdrawal notice (Rule 15c3-1(e) under the Act); and (13) failure
to designate a person or persons responsible for implementing and
monitoring a member's anti-money laundering compliance program (Rule
4.20).
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    The Exchange proposed to establish a rolling 24-month look-back
period for all of their trading and decorum violation offenses. In
addition, the Exchange proposed to establish fixed fine levels for
Class A and Class B Offenses.\6\ For Class A Offenses, CBOE will now
assess a fine of $1,000 for the first violation, $2,500 for the second
violation, and $5,000 for the third violation. The Exchange is also
proposing to delete the reference to ``Subsequent Offenses'' for Class
A Offenses.\7\ For Class B Offenses, CBOE is proposing to assess a fine
of $250 for the first offense, $500 for the second offense, $1,000 for
the third offense, and $2,500 for any subsequent offenses.\8\ The
Exchange proposes to change the classification of a market maker
failing to respond to a request for a market by an Order Book Official
or a PAR Official from a Class B Offense to a Class A Offense due to
the nature of this violation. The Exchange is also proposing to remove
obsolete or duplicative violations from the list of Class A and Class B
Offenses.\9\
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    \6\ Class A Offenses are considered more serious than Class B
Offenses and therefore carry a heavier penalty. Class A Offenses
include unbusinesslike conduct, harassment, and property damage.
Class B Offenses include abusive language, dress code violations,
and failure to display I.D.
    \7\ The previous fine levels for Class A Offenses were: $500 to
$1,500 for the first violation, $1,000 to $3,000 for the second
violation, $2,000 to $5,000 for the third violation, and $3,500 to
$5,000 for subsequent offenses.
    \8\ The previous fine levels for Class B Offenses were: $100 to
$500 for the first offense, $500 to $1,000 for the second offense,
$1,000 for the third offense, and $2,500 for subsequent offenses.
    \9\ The Exchange is proposing to remove ten Class A and Class B
Violations. They are: (i) Quote width violations; (ii) violations of
Rule 8.51 (Firm Quote); (iii) enabling/assisting a suspended member
or associated person to gain improper access to the floor; (iv)
gaining/enabling improper access to the floor; (v) effecting or
attempting to effect a transaction with no public outcry; (vi)
improper use of the runners' aisle; (vii) trading in the aisle;
(viii) impermissible use of member phones; (ix) returning late or
failing to return a visitor badge; and (x) DPM failure to activate
or deactivate RAES.
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    The Commission finds that the proposal is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\10\ In particular, the
Commission believes that the proposal is consistent with Section
6(b)(5) of the Act,\11\ which requires that the rules of an exchange be
designed to, among other things, protect investors and the public
interest. The Commission also believes that the proposal is consistent
with Sections 6(b)(1) and 6(b)(6) of the Act,\12\ which require that
the rules of an exchange enforce compliance with, and provide
appropriate discipline for, violations of Commission and Exchange
rules. Furthermore, the Commission believes that the proposed changes
to the MRP should strengthen the Exchange's ability to carry out its
oversight and enforcement responsibilities as a self-regulatory
organization in cases where full disciplinary proceedings are
unsuitable in view of the minor nature of the particular violation.
Therefore, the Commission finds that the proposal is consistent with
the public interest, the protection of investors, or otherwise in
furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2)
under the Act,\13\ which governs minor rule violation plans.
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    \10\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
    \13\ 17 CFR 240.19d-1(c)(2).
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    In approving this proposed rule change, the Commission in no way
minimizes the importance of compliance with CBOE rules and all other
rules subject to the imposition of fines under the MRP. The Commission
believes that the violation of any self-regulatory organization's
rules, as well as Commission rules, is a serious matter. However, the
MRP provides a reasonable means of addressing rule violations that do
not rise to the level of requiring formal disciplinary proceedings,
while providing greater flexibility in handling certain violations. The
Commission expects that CBOE will continue to conduct surveillance with
due diligence and make a determination based on its findings, on a
case-by-case basis, whether a fine of more or less than the recommended
amount is appropriate for a violation under the MRP or whether a
violation requires formal disciplinary action under CBOE Rules 17.1-
17.14.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\14\ and Rule 19d-1(c)(2) under the Act,\15\ that the proposed rule
change (SR-CBOE-2009-037), as amended, be, and hereby is, approved and
declared effective.
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 17 CFR 240.19d-1(c)(2).
    \16\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-19892 Filed 8-19-09; 8:45 am]

BILLING CODE 8010-01-P
