Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and rule 19b-4 thereunder, notice is hereby given that on December 6, 2001, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items, I, II, and III below, which Items have been prepared by the CBOE. The CBOE filed Amendment No. 1 on December 17, 2001. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The CBOE proposes to amend several provisions of its disciplinary rules and add a new disciplinary rule.
Below is the text of the proposed rule change, as amended. Proposed new language is italicized and proposed deletions are in brackets.
Chicago Board Options Exchange, Incorporated Rules
Rule 17.9. Decision
Following a hearing conducted pursuant to Rule 17.6 of this Chapter, the Panel shall issue a decision in writing, based solely on the record, determining whether the Respondent has committed a violation and imposing the sanction, if any, therefor. Where the Panel is not composed of at least a majority of the members of the Business Conduct Committee, its determination shall be automatically reviewed by a majority of the Committee, which may affirm, reverse or modify in whole or in part or may remand the matter for additional findings or supplemental proceedings. Such modification may include an increase or decrease of the sanction. The decision shall include a statement of findings and conclusions, with the reasons therefor, upon all material issues presented on the record. Where a sanction is imposed, the decision shall include a statement specifying the acts or practices in which the Respondent has been found to have engaged and setting forth the specific provision of the Securities Exchange Act of 1934, as amended, rules and regulations promulgated thereunder, constitutional provisions, by-laws, rules, interpretations or resolutions of the Exchange of which the acts are deemed to be in violation. The Respondents and the Office of Enforcement shall be promptly sent a copy of the decision. After Board review pursuant to Rule 17.10, or the time for such review has expired, the decision will be considered final, and the Exchange shall publish a summary of the decision in the Exchange Bulletin.
Rule 17.10. Review
(a)(1) Petition. Both t[T]he Respondent and the Office of Enforcement shall have 15 days after service of notice of any[a] decision made pursant to Rule 17.9 of this Chapter to petition for review of the decision by filing a copy of the petition with the Secretary of the Exchange (“Secretary”) and with all other parties to the hearing [the Exchange's Office of Enforcement]. Such petition shall be in writing and shall specify the findings and conclusions to which exceptions are taken together with reasons for such exceptions. Any objections to a decision not specified by written exception shall be considered to have been abandoned.
(2) Written Submissions. Within 15 days after a [Respondent's]petition for review has been filed with the Secretary of the Exchange pursuant to paragraph (a)(1) of this Rule, the other parties to the hearing[Exchange staff] may each submit to the Secretary a written response to the petition. A copy of the response must be served upon the petitioner[Respondent]. The petitioner[A Respondent] has 15 days from the service of the response to file a reply with the Secretary and the other parties [Office of Enforcement].
(b) Conduct of Review. The review shall be conducted by the Board or a committee of the Board composed of at least three Directors whose decision must be ratified by the Board. Any Director who participated in a matter before the Business Conduct or other Committee may not participate in any review of that matter by the Board. Unless the Board shall decide to open the record for the introduction of evidence or to hear argument, such review shall be based solely upon the record and the written exceptions filed by the parties. New issues may be raised by the Board; the parties to the hearing[Respondents] shall be given notice of and any opportunity to address any such new issues. The Board may affirm, reverse or modify, in whole or in part, the decision of the Business Conduct Committee. Such modification may include an increase or decrease of the sanction. The decision of the Board shall be in writing, shall be promptly served on the Respondent and the Office of Enforcement, and shall be final.
(c) Review on Motion of Board. The Board may on its own initiative order review of a decision made pursuant to Rule 17.7 or 17.9 of this Chapter within 30 days after notice of the decision has Start Printed Page 379been served on the Respondent and the Office of Enforcement. Such review shall be conducted in accordance with the procedure set forth in paragraph (b) of this Rule.
(d) No change.
Rule 17.15. Ex Parte Communications
Members and persons associated with members shall not make or knowingly cause to be made an ex parte communications with any member of the Board with the intent to influence the outcome of any pending investigation or disciplinary proceeding. Members of the Board shall not make a knowingly cause to be made an ex parte communication with any members or persons associated with members with the intent to influence the outcome of any pending investigation or disciplinary proceeding. No violation of this Rule shall be deemed to occur if the ex parte communication deals solely with procedural matters rather than the merits of the investigation or proceeding.
Interpretations and Policies:
.01 “Ex parte communication” means an oral or written communication made without notice to all parties, that is, regulatory staff and Subjects of investigations or Respondents in proceedings. A written communication is ex parte unless a copy has been previously or simultaneously delivered to all interested parties. An oral communication is ex parte unless it is made in the presence of all interested parties except those who, on adequate prior notice, declined to be present.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the CBOE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The CBOE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
a. Ex Parte Communications With Board of Director (“Board”) Members Prohibited
Currently, Exchange Rule 17.4(d) prohibits members or persons associated with members from making or causing ex parte communications with any member of the Business Conduct Committee (“BBC”) concerning the merits of any matter pending under the disciplinary rules of the Exchange. This prohibition is to eliminate the potential that such communications might somehow influence the outcome of an investigation or enforcement matter. The Exchange believes that Exchange disciplinary rules should also forbid ex parte communications with members of the Exchange Board. Such communications are already prohibited by other self-regulatory organizations. Therefore, the exchange proposes to add a new Exchange Rule 17.15, “Ex Parte Communications,” which would prohibit ex parte communications with members of the Board that are made with the intent to influence the outcome of any pending investigation or disciplinary proceeding. The Exchange represents that proposed Exchange Rule 17.15 would expressly create a safe harbor for communication dealing solely with procedural matters rather than the merits of the investigation or proceeding. The text of the current Interpretation and Policy .01 to Exchange Rule 17.4(d) defining “Ex Parte Communications” will be duplicated as Interpretation and Policy .01 of proposed Exchange Rule 17.15.
b. Exchange Right to Appeal
Exchange Rule 17.10(a) permits a Respondent in a disciplinary matter to appeal a decision of the BCC to the Board, but does not grant the Exchange's Office of Enforcement (“OOE”) a similar right of appeal. Again, the Exchange believes that its OOE should have such a right, both to appeal factual findings that the OOE thinks may have been in error, as well as to appeal disciplinary sanctions that the OOE deems insufficient. Such appeals are already authorized at other exchanges. Therefore, the Exchange proposes to amend Exchange Rules 17.9 and 17.10 to give the OOE and the Respondent equivalent rights in the appellate process.
2. Statutory Basis
The Exchange believes that the proposed rule change described above is consistent with the provisions of section 6(b)  of the Act, in general, and specifically furthers the objectives of sections 6(b)(1), 6(b)(6), and 6(b)(7)  of the Act, in particular, in that it will enhance the ability of the Exchange to enforce compliance by its members and persons associated with its members with provisions of the Act, the rules and regulations thereunder, and the rules of the Exchange. It will help ensure that members and persons associated with members are appropriately disciplined when they violate those provisions.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on competition 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, as amended, in consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Start Printed Page 380Commission, 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. Copies of such filing will also be available for inspection and copying at the principal office of the CBOE. All submissions should refer to File No. SR-CBOE-2001-59 and should be submitted by January 24, 2002.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
3. See letter from Christopher R. Hill, Attorney II, Office of Enforcement, Legal Division, CBOE, to Sapna Patel, Attorney, Division of Market Regulation, Commission, dated December 13, 2001 (“Amendment No. 1”). In Amendment No. 1, the CBOE made some technical corrections to the proposed rule text.Back to Citation
4. See American Stock Exchange LLC Exchange Disciplinary Proceedings Rule 11(a); National Association of Securities Dealers, Inc. (“NASD”) Rule 9143(a); and Pacific Exchange, Inc. Rule 10.3(a).Back to Citation
5. See New York Stock Exchange, Inc. Rule 476(f); NASD Rule 9311; and Securities Exchange Act Release No. 43554 (November 14, 2001), 65 FR 69975 (November 21, 2001) (File No. SR-Amex-00-22).Back to Citation
[FR Doc. 02-76 Filed 1-2-02; 8:45 am]
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