
[Federal Register Volume 78, Number 93 (Tuesday, May 14, 2013)]
[Notices]
[Pages 28262-28265]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11369]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69535; File No. SR-CBOE-2013-043]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of a Proposed Rule Change Relating to 
Exchange Rule 9.21

May 8, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 25, 2013, Chicago Board Options Exchange, Incorporated 
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been substantially 
prepared by the Exchange. 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

    The Exchange proposes to update Exchange Rule 9.21, ``Options 
Communications.'' The text of the proposed rule change is provided 
below. (additions are italicized; deletions are [bracketed])
* * * * *

Chicago Board Options Exchange, Incorporated Rules

* * * * *

Rule 9.21. Options Communications

    (a) Definitions. For purposes of this Rule and any interpretation 
thereof, ``options communications'' consist of:
    (i) [Advertisements. The term ``advertisements'' shall include any 
material concerning options, other than an independently prepared 
reprint and institutional sales material, that is published, or used in 
any electronic or other public media, including any Web site, 
newspaper, magazine or other periodical, radio, television, telephone 
or tape recording, video tape display, motion picture, billboards, 
signs or telephone directories (other than routine listings).
    (ii) Sales Literature. The term ``sales literature'' shall include 
any written or electronic communication concerning options other than 
an advertisement, independently prepared reprint, institutional sales 
material and correspondence, that is generally available to customers 
or the public, including circulars, research reports, performance 
reports or summaries, worksheets, form letters, telemarketing scripts, 
seminar texts, reprints (that are not independently prepared reprints) 
or excerpts of any other advertisement, sales literature or published 
article and press release concerning a Trading Permit Holder's products 
or services.
    (iii)] Correspondence. The term ``correspondence'' shall include 
any written [letter,] (including electronic) [mail message or market 
letter] communication distributed or made available [by a Trading 
Permit Holder] to[: (A) one of more of its existing retail customers; 
and (B)] 25 or fewer [than 25 prospective] retail customers within any 
30 calendar-day period.
    [(iv)] (ii) Institutional Communication [Sales Material]. The term 
``institutional communication [sales material]'' shall include any 
written (including electronic) communication concerning options that is 
distributed or made available only to institutional investors, but does 
not include a Trading Permit Holder's internal communications. The term 
institutional investor shall mean any qualified investor as defined in 
Section 3(a)(54) of the Securities Exchange Act of 1934.
    (iii) Retail Communication. The term ``retail communication'' means 
any written (including electronic) communication that is distributed or 
made available to more than 25 retail investors within any 30 calendar-
day period.
    [(v) Public Appearances. The term ``public appearance'' shall 
include any participation in a seminar, forum (including an interactive 
electronic forum), radio, television or print media interview, or other 
public speaking activity, or the writing of a print media article, 
concerning options.
    (vi) Independently Prepared Reprints. The term ``independently 
prepared reprints'' shall include any reprint or excerpt of an article 
issued by a publisher concerning options, provided that: the publisher 
is not an affiliate of the Trading Permit Holder using the reprint or 
any underwriter or issuer of a security mentioned in the reprint or 
excerpt that the Trading Permit Holder is promoting; neither the 
Trading Permit Holder using the reprint or excerpt nor any underwriter 
or issuer of a security mentioned in the reprint or excerpt has 
commissioned the reprint or excerpted article; and the Trading Permit 
Holder using the reprint or excerpt has not materially altered its 
contents except as necessary to make the reprint or excerpt consistent 
with applicable regulatory standards or to correct factual errors.]
    (b) Approval by Registered Options Principal.
    (i) All retail communications [advertisements, sales literature] 
(except completed worksheets) [and independently prepared reprints] 
issued by a Trading Permit Holder or TPH organization pertaining to 
options shall be approved in advance by a Registered Options Principal 
designated by the Trading Permit Holder or TPH organization's written 
supervisory procedures.
    (ii) Correspondence need not be approved by a Registered Options 
Principal prior to use[, unless such correspondence is distributed to 
25 or more existing retail customers within any 30 calendar-day period 
and makes any financial or investment recommendation or otherwise 
promotes a product or service of the Trading Permit Holder]. All 
correspondence is subject to the supervision and review requirements of 
Rule 9.8.

[[Page 28263]]

    (iii) Institutional communications. Each Trading Permit Holder or 
TPH organization shall establish written procedures that are 
appropriate to its business, size, structure, and customers for review 
by a Registered Options Principal of institutional communications used 
by[sales material relating to options need not be approved by a 
Registered Options Principal prior to use, but is subject to the 
supervision and review requirements as set forth in the written 
supervisory procedures of] the Trading Permit Holder or TPH 
organization.
    (iv) No change.
    (c) Exchange Approval Required. In addition to the approval 
required by paragraph (b) of this Rule, [all advertisements, sales 
literature and independently prepared reprints] retail communications 
of a Trading Permit Holder or TPH organization pertaining to 
standardized options that is not accompanied or preceded by the 
applicable current options disclosure document (``ODD'') shall be 
submitted to the Exchange at least ten calendar days prior to use (or 
such shorter period as the Exchange may allow in particular instances) 
for approval and, if changed or expressly disapproved by the Exchange, 
shall be withheld from circulation until any changes specified by the 
Exchange have been made or, in the event of disapproval, until the 
communication has been resubmitted for, and has received, Exchange 
approval. The requirements of this paragraph shall not be applicable 
to:
    (i) Options communications submitted to another self-regulatory 
organization having comparable standards pertaining to such 
communications and
    (ii) communications in which the only reference to options is 
contained in a listing of the services of the TPH organization[.];
    (iii) the ODD; and
    (iv) the prospectus.
    (d) General Rule. No Trading Permit Holder or member organization 
or associated person shall use any options communication which:
    (i)-(iv) No change.
    (v) Fails to reflect the risks attendant to options transactions 
and the complexities of certain options investment strategies. [Any 
statement referring to the potential opportunities presented by options 
shall be balanced by a statement of the corresponding risks. The risk 
statement shall reflect the same degree of specificity as the statement 
of opportunities, and broad generalities must be avoided.]
    (vi-vii) No change.
    (viii) would constitute a prospectus as that term is defined in the 
Securities Act of 1933, unless it meets the requirements of Section 10 
of the Securities Act of 1933.
    Paragraphs (vi) and (vii) shall not apply to institutional 
communications [sales material] as defined in this Rule 9.21. Any 
statement in any options communications referring to the potential 
opportunities or advantages presented by options shall be balanced by a 
statement of the corresponding risks. The risk statement shall reflect 
the same degree of specificity as the statement of opportunities, and 
broad generalities must be avoided.
* * * * *
    The text of the proposed rule change is also available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, and at the Commission's Public Reference Room.

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 Exchange 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 Exchange 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 Exchange is proposing to update Rule 9.21, ``Options 
Communications,'' to conform with changes recently made by the 
Financial Industry Regulatory Authority, Inc. (``FINRA'') to its 
corresponding rule.\3\ The proposed rule change would make changes to 
the Exchange Rule 9.21, ``Options Communications.'' The Exchange 
believes the proposed changes will alert Trading Permit Holders 
(``TPHs'') to their requirements with respect to Options Communications 
while further regulating all communications for compliance with 
Exchange Rules and the Securities Exchange Act of 1934 (the ``Act''). 
In addition, the Exchange believes that the proposed rule change will 
help ensure that investors are protected from potentially false or 
misleading communications with the public distributed by Exchange TPHs.
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    \3\ See Securities and Exchange Act Release No. 34-68650 
(January 14, 2013), 78 FR 4182 (January 18, 2013) (Notice of 
Immediate Effectiveness of SR-FINRA-2013-001).
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    First, the proposed rule change would amend the language in 
Exchange Rule 9.21(a). Specifically, the proposed rule change would 
reduce the number of defined categories of communication from six (in 
the current rule) to three. The proposed three categories of 
communications are: retail communications, correspondence, and 
institutional communications. Current definitions of ``sales 
literature,'' ``advertisement,'' and ``independently prepared reprint'' 
would be combined into a single category of ``retail communications.'' 
Thus, the Exchange is proposing to define ``retail communication'' as 
``any written (including electronic) communication that is distributed 
or made available to more than 25 retail investors within any 30 
calendar-day period.'' The Exchange will also update the current 
definition of ``correspondence'' to ``any written (including 
electronic) communication distributed or made available by a Trading 
Permit Holder to 25 or fewer retail customers within any 30 calendar-
day period.'' Finally, in the proposed rule filing, ``institutional 
communication'' would include written (including electronic) 
communications that are distributed or made available only to 
institutional investors. The Exchange believes the proposed changes to 
the definitions in Rule 9.21(a) to create a more concise and 
descriptive rule which benefits investors by clarifying the terms.
    Next, the Exchange is proposing to amend Rule 9.21(b), ``Approval 
by Registered Options Principal.'' More specifically, the Exchange is 
proposing to replace the phrase ``advertisements, sales literature, and 
independently prepared reprints'' in Rule 9.21(b)(i) with the new 
proposed term, ``retail communications.'' This proposed change will 
make the Rule more consistent with the other proposed changes.
    Under proposed rule 9.21(b)(ii), correspondence would ``need not be 
approved by a Registered Options Principal prior to use'' but would be 
subject to the supervision and review requirements of Rule 9.8. The 
Exchange is proposing to delete the requirement for principal approval 
of correspondence that is distributed to 25 or more existing retail 
customers within a 30 calendar-day period that makes any financial or 
investment recommendation or otherwise promotes

[[Page 28264]]

the product or service of a TPH. Under the proposed Rule 9.21(b), such 
communications would be considered retail communications and therefore 
subject to the principal approval requirement. As such, the proposed 
change does not substantively change the scope of options 
communications that would require principal approval.
    Next, the Exchange is proposing to modify the required approvals of 
``Institutional communications.'' More specifically, the Exchange is 
proposing to add that a TPH shall ``establish written procedures that 
are appropriate to its business, size, structure, and customers for 
review by a Registered Options Principal of institutional 
communications used by the Trading Permit Holder or TPH organization.'' 
The Exchange is proposing these changes to conform its rule with the 
current FINRA rule.
    The Exchange is also proposing to amend Rule 9.21(c). More 
specifically, the Exchange is proposing to, again, replace the phrase 
``advertisements, sales literature, and independently prepared 
reprints'' with the new proposed term ``retail communications.'' The 
Exchange is also proposing to further exempt options disclosure 
documents and prospectuses from Exchange review as these documents have 
other further requirements under the Securities Act of 1933. The 
Exchange is proposing these changes to conform its rule with the 
current FINRA rule.
    The Exchange is proposing to specify in Rule 9.21(d) that Exchange 
TPHs may not use any options communications that ``constitute a 
prospectus'' unless such communications would meet the requirements of 
the Securities Act of 1933. The Exchange believes this change will put 
TPHs on notice that all documents that may constitute a prospectus will 
be required to comply with the Securities Act of 1933 as such. Finally, 
the Exchange is proposing to move and slightly modify Rule 9.21(d) to 
state that any statement made referring to ``potential opportunities or 
advantages presented by options'' must also be accompanied by a 
statement identifying the potential risks posed. The Exchange believes 
that moving the language to the end of paragraph (d) will alert the 
public of potential risks associated with options, as well as the 
advantages, which will create more awareness of the potential harms 
that may arise in the participation of such securities. The Exchange is 
proposing these changes to conform its rule with the current FINRA 
rule. The Exchange believes the proposed rule changes will provide 
greater clarity to TPHs and the public regarding the Exchange's rules. 
In addition, the Exchange believes that the proposed rule change will 
help ensure that investors are protected from potentially false or 
misleading communications with the public distributed by Exchange TPHs.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\4\ Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \5\ requirements that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \6\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ Id.
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    In particular, the Exchange believes the proposed rule changes will 
provide greater clarity to TPHs and the public regarding the Exchange's 
rules. In addition, the Exchange believes that the proposed rule change 
will help ensure that investors are protected from potentially false or 
misleading communications with the public distributed by Exchange TPHs.

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. Specifically, the proposed rule 
change will bring clarity and consistency to Exchange Rules. The 
Exchange does not believe the proposed rule change will impose any 
burden on any intramarket competition as it applies to all TPHs. In 
addition, the Exchange does not believe the proposed rule filing will 
bring any unnecessary burden on intermarket competition as it is 
consistent with the FINRA ``Options Communications'' rule.\7\
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    \7\ See FINRA Rule 2220.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove 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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2013-043 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2013-043. This file 
number should be included on the subject line if email 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

[[Page 28265]]

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 Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. 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-2013-043 and should be 
submitted on or before June 4, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11369 Filed 5-13-13; 8:45 am]
BILLING CODE 8011-01-P


