
[Federal Register Volume 78, Number 238 (Wednesday, December 11, 2013)]
[Notices]
[Pages 75435-75437]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29494]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70996; File No. SR-CBOE-2013-114]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change To Amend CBOE Rule 18.2 (Procedures in Trading 
Permit Holder Controversies)

December 5, 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 November 22, 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 and II 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 and to 
approve the proposed rule change on an accelerated basis.
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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 amend CBOE Rule 18.2 to provide that 
arbitrators in controversies between parties who are Trading Permit 
Holders (``TPHs'') or associated persons of TPHs (such controversies 
herein referred to as ``TPH controversies'') may be selected from 
CBOE's Arbitration Committee (``Committee'') or, if necessary, from 
rosters provided by the Financial Industry Regulatory Authority Inc. 
(``FINRA'') of qualified non-public arbitrators and non-public 
chairperson-qualified arbitrators, as defined by FINRA.
    The text of the proposed rule change is available on the Exchange's 
Web site at 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 V 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 seeks to amend Rule 18.2 (Procedures in Trading Permit 
Holder Controversies) to provide more flexibility with regards to the 
selection of the arbitration panel for TPH controversies. By way of 
background, the Exchange offers an arbitration facility for TPHs and 
associated persons of TPHs to arbitrate disputes, claims or 
controversies arising out of Exchange business.\3\
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    \3\ For the purposes of CBOE's arbitration rules, the term 
``Exchange business'' does not include a dispute, claim or 
controversy alleging employment discrimination, including sexual 
harassment. The Exchange may, however, make its arbitration 
facilities available for the resolution of employment discrimination 
claims if the parties mutually agree to arbitrate the claim after it 
has arisen. See CBOE Rule 18.1 Interpretation and Policy .03.
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    Under Exchange rules, any arbitration between parties who are TPHs 
or persons associated with a TPH shall be resolved by an arbitration 
panel that consists of three members of the Committee, which is 
maintained primarily as a means for managing a pool of qualified 
industry arbitrators that generally is composed of a cross-section of 
Exchange TPHs and/or former TPHs or associated persons of TPHs or other 
individuals who are knowledgeable about the securities industry.
    For TPH controversies, CBOE Rule 18.2(a) currently provides that 
the arbitration panel appointed to hear such controversies be comprised 
of no fewer than three arbitrators from the Committee.\4\ In this 
proposal, the Exchange seeks to amend Rule 18.2 to provide greater 
flexibility with regard to the selection of the arbitration panel for 
TPH controversies. Specifically, CBOE proposes to amend the rule to 
provide that arbitrators may be selected from the Committee or, if 
necessary, from rosters provided by FINRA of qualified non-public 
arbitrators and non-public chairperson-qualified arbitrators (as 
defined by FINRA's rules governing arbitration of industry disputes) 
that have indicated that they would be willing to serve as an 
arbitrator for another self-regulatory organization.\5\
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    \4\ In practice, however, arbitration panels for TPH 
controversies typically consist of three Committee members.
    \5\ FINRA Rule 13100(p) defines the term ``non-public 
arbitrator'' as a person who is otherwise qualified to serve as an 
arbitrator and: (1) Is or, within the past five years, was: (A) 
Associated with, including registered through, a broker or a dealer 
(including a government securities broker or dealer or a municipal 
securities dealer); (B) registered under the Commodity Exchange Act; 
(C) a member of a commodities exchange or a registered futures 
association; or (D) associated with a person or firm registered 
under the Commodity Exchange Act; (2) is retired from, or spent a 
substantial part of a career engaging in, any of the business 
activities listed in paragraph (p)(1); (3) is an attorney, 
accountant, or other professional who has devoted 20 percent or more 
of his or her professional work, in the last two years, to clients 
who are engaged in any of the business activities listed in 
paragraph (p)(1); or (4) is an employee of a bank or other financial 
institution and effects transactions in securities, including 
government or municipal securities, and commodities futures or 
options or supervises or monitors the compliance with the securities 
and commodities laws of employees who engage in such activities. For 
purposes of FINRA Rule 13100(p), the term ``professional work'' does 
not include mediation services performed by mediators who are also 
arbitrators, provided that the mediator acts in the capacity of a 
mediator and does not represent a party in the mediation. The 
Exchange's guidelines classifying whether an arbitrator is deemed to 
be from the securities industry is substantially similar to FINRA's 
definition of ``non-public arbitrator.'' See CBOE Rule 18.10.
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    Over the years, fewer TPHs have made themselves available to serve 
on the Committee. Consequently, it has become increasingly burdensome 
for the Exchange to select a sufficient number of arbitrators solely 
from the Committee to sit on any given arbitration panel. In addition, 
it has become increasingly difficult not only to find three arbitrators 
to sit on an arbitration panel, but also to ensure that at least one of 
the arbitrators is qualified to serve as a chairperson on the panel. 
Moreover, there are instances in which many Committee members have 
interests, relationships, or circumstances that might preclude them 
from being able to

[[Page 75436]]

render an objective and impartial determination in a particular 
arbitration matter. The Exchange believes that eliminating the 
requirement that all arbitrators for TPH controversies be selected from 
the Committee would provide the Exchange with additional flexibility 
and help ensure that the Exchange would have a sufficient number of 
qualified non-public arbitrators readily available at all times.
    The proposed rule change would provide the Exchange with the 
ability to appoint arbitrators identified in the FINRA-provided rosters 
in instances in which the Exchange is unable to select a sufficient 
number of arbitrators from its Committee. For example, the Exchange may 
be unable to select a sufficient number of arbitrators from the 
Committee if all the arbitrators from the Committee who are eligible to 
serve as a panel chairperson are unavailable to serve as the panel 
chairperson in a particular arbitration matter, due to either 
scheduling conflicts or the fact that they have interests, 
relationships, or circumstances which preclude them from being able to 
render an objective and impartial determination in that matter. In such 
instances, it would be necessary for the Exchange to select one 
arbitrator from a FINRA-provided roster of non-public, chairperson-
qualified arbitrators, as defined by FINRA \6\ to serve as the panel 
chairperson. Under the proposal, the Exchange would only appoint as 
many arbitrators from outside the Committee as necessary. For example, 
in the scenario described above, if the Exchange is able to appoint to 
the panel the other two ``non-chairperson'' arbitrators from the 
Committee, it would do so.
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    \6\ See FINRA Rule 13400.
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    The Exchange believes that FINRA maintains a comprehensive roster 
of arbitrators that are in good standing and qualified to sit on an 
arbitration panel. The Exchange also believes that the qualification 
requirements to become a FINRA arbitrator are similar to the 
qualification requirements to become and stay a member of the 
Committee. For example, similar to the Exchange's requirements, in 
order for an individual to become a FINRA arbitrator, the individual 
must have a minimum of five years of business and/or professional 
experience and must have attended an introductory arbitrator training 
course. Accordingly, the Exchange believes that the arbitrators named 
on any FINRA non-public arbitrator roster would be sufficiently 
qualified to serve on any CBOE arbitration panel.
    The applicable rules of Chapter XVIII of CBOE's Rules would 
continue to apply to all arbitrators, regardless of whether they were 
selected from the Committee or from a FINRA-provided roster. In 
addition, all arbitrators, whether or not selected from the Committee, 
would be screened for conflicts, potential conflicts, and the 
appearance of conflicts prior, and subsequent, to appointment and would 
be required to disclose any information that presents a conflict, 
existing or potential, or creates the appearance of a conflict with any 
party, fact, or circumstance related to the case in question.
    FINRA is aware of the Exchange's proposal and has indicated that it 
has no objection. If this filing is approved, the Exchange expects to 
enter into a written agreement with FINRA under which FINRA would agree 
to provide to the Exchange lists of qualified non-public arbitrators 
and non-public chairperson-qualified arbitrators upon the Exchange's 
request when the Exchange determines that it does not have sufficient 
arbitrators to handle a case. The Exchange further expects FINRA to 
agree to provide these lists to CBOE to the extent that FINRA has 
sufficient non-public arbitrators in a specified location at the time 
of the request.
    The proposed rule change will become effective upon approval by the 
Commission. CBOE has requested the Commission to find good cause 
pursuant to Section 19(b)(2) \7\ of the Act for approving the proposed 
rule change prior to the 30th day after its publication in the Federal 
Register.
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    \7\ 15 U.S.C. 78s(b)(2).
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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.\8\ Specifically, the Exchange believes the proposed rule change is 
consistent with Section 6(b)(5) of the Act \9\ which requires 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange notes that the purpose of the Exchange 
providing an arbitration forum is, among other things, to provide TPHs 
and associated persons of TPHs with a simple and inexpensive procedure 
for resolution of their controversies with other TPHs or associated 
persons of TPHs. The Exchange believes that the proposed rule change is 
consistent with the provisions of the Act because it would help ensure 
that the Exchange has a sufficient number of qualified arbitrators 
readily available to resolve TPH controversies. In addition, the 
Exchange believes that providing it with greater flexibility in its 
selection of qualified arbitration panels would prevent unnecessary 
delays in, and improve the administration of, its arbitration forum for 
resolving disputes and enhancing the forum for its users. As such, the 
Exchange believes the proposed rule change meets the requirements of 
Section 6(b)(5) of the Act.

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 Exchange 
believes the proposed rule change will not impose any burden on 
competition because the Exchange is merely providing greater 
flexibility in its selection of arbitrators for arbitration panels to 
facilitate and improve the administration of its arbitration forum and 
ensure that the Exchange has a sufficient number of qualified non-
public arbitrators readily available.

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. Commission's Findings

    After careful consideration, the Commission finds that the proposed 
rule change 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 finds that the proposed 
rule change is consistent with, and would further the purposes of,

[[Page 75437]]

Section 6(b)(5) of the Act \11\ by providing the Exchange with a 
mechanism to ensure that it has a sufficient number of qualified non-
public arbitrators readily available to resolve TPH controversies. 
Section 6(b)(5) of the Act specifically provides, among other things, 
that the rules of a national securities exchange should foster 
cooperation and coordination with persons engaged in regulating 
securities.\12\ The Commission believes that the proposed rule change 
would foster cooperation between CBOE and FINRA to help facilitate and 
improve the administration of CBOE's arbitration forum. In addition, 
the proposed rule change would provide the Exchange with greater 
flexibility in its selection of qualified non-public arbitration 
panels, which would prevent unnecessary delays in, and improve the 
administration of, its arbitration forum for resolving disputes.
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    \10\ In approving this proposal, the Commission has considered 
the proposed rule change's impact on efficiency, competition, and 
capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    The Commission does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed rule change merely helps ensure that CBOE has a sufficient 
number of qualified non-public arbitrators readily available for TPH 
controversies. Moreover, the proposed rule change would be neutrally 
applied to all TPH controversies.

IV. Accelerated Approval

    In its filing, CBOE requested that the Commission approve the 
proposed rule change on an accelerated basis so that the proposal may 
become operative as soon as practicable. The Commission finds good 
cause, pursuant to Section 19(b)(2) of the Act,\13\ for approving the 
proposed rule change prior to the 30th day after the date of 
publication in the Federal Register. In particular, CBOE represented to 
the Commission staff that there are pending TPH controversies that 
cannot be heard in arbitration because there are not enough eligible 
arbitrators on the Committee because many Committee members have 
interests, relationships, or circumstances that preclude them from 
being able to render an objective and impartial determination in these 
matters.\14\ The Exchange has also represented that the delay in 
resolving these TPH controversies has created an undue hardship on the 
parties involved.\15\ The Commission believes that granting CBOE's 
request for accelerated approval would allow the Exchange to more 
readily select the arbitration panels for these pending TPH 
controversies, thus preventing further delay in hearing the parties' 
claims. Accordingly, the Commission finds that good cause exists to 
approve the proposed rule change on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ See email from Corinne Klott, Attorney, CBOE, to Daniel 
Fisher, Branch Chief, Division of Trading and Markets, Commission, 
dated December 3, 2013.
    \15\ Id.
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V. 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-2013-114 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-2013-114. 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 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-2013-114 and should be 
submitted on or before January 2, 2014.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-CBOE-2013-114) be, and 
hereby is, approved on an accelerated basis.
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    \16\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-29494 Filed 12-10-13; 8:45 am]
BILLING CODE 8011-01-P


