[Federal Register Volume 74, Number 127 (Monday, July 6, 2009)]
[Notices]
[Pages 32015-32021]
[FR Doc No: E9-15775]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60177; File No. SR-CBOE-2009-037]

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

June 25, 2009.
    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 June 4, 2009, the Chicago Board Options Exchange, Incorporated
(``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 prepared by the
Exchange. The Exchange filed Amendment No. 1 to the proposed rule
change on June 17, 2009.\3\ Subsequently, on June 23, 2009, the
Exchange filed Amendment No. 2.\4\ 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.
    \3\ Amendment No. 1 is a partial amendment that makes four non-
substantive, technical changes to the rule text submitted as Exhibit
5 to SR-CBOE-2009-037.
    \4\ Amendment No. 2 is a partial amendment that makes
corrections to the description of the changes submitted in Amendment
No. 1.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Chicago Board Options Exchange, Incorporated (``CBOE'' or
``Exchange'') proposes to amend CBOE Rule 17.50--Imposition of Fines
for Minor Rule Violations to (i) increase and strengthen the sanctions
imposed under CBOE's Minor Rule Violation Plan; (ii) incorporate
additional violations into CBOE's Minor Rule Violation Plan; (iii)
delete obsolete or duplicative sections of the rule; and (iv) make
various non-substantive technical changes to the rule. The text of the
proposed rule change is available on the Exchange's

Web site (http://www.cboe.com/Legal), at the Exchange's Office of the
Secretary, and at the Commission.

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 self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below and is set forth in sections (A),
(B), and (C) below.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    CBOE has recently conducted a comprehensive review of its Minor
Rule Violation Plan. As a result of this review, CBOE is proposing to
(i) increase and strengthen the sanctions imposed for various
violations; (ii) incorporate additional violations into the Exchange's
Minor Rule Violation Plan; (iii) delete obsolete or duplicative
sections of the rule; and (iv) make various non-substantive changes to
the rule.
    The Exchange believes that increasing the fine levels specified and
lengthening the surveillance period from a twelve month period to a
rolling twenty-four month period will serve as an effective deterrent
to future violative conduct. Where the Exchange is proposing to
increase the look-back period to twenty-four months, the Exchange will
consider any violations that resulted in formal disciplinary action
within the previous twenty-four months for purposes of calculating the
summary fine. Similarly, where the Exchange is proposing to incorporate
new violations into its Minor Rule Violation Plan, the Exchange will
consider violations resulting in formal disciplinary action within the
previous twenty-four month period when determining whether previous
violations have occurred for purposes of calculating a summary fine.
CBOE believes that the proposed changes will allow for consistency
throughout Rule 17.50. CBOE is also proposing to delete obsolete or
duplicative provisions from its Minor Rule Violation Program to
diminish any confusion in the application of the Rule.
    CBOE is proposing to incorporate additional violations into its
Minor Rule Violation Plan. These violations include (i) exercise
limits; (ii) trading in restricted classes; (iii) Linkage violations
(including order protection violations and locked or crossed
violations); (iv) Market-Maker quoting obligations; (v) failure to
report position and account information; and failure to designate and
identify to the Exchange a person or persons responsible for
implementing and monitoring the Anti-Money Laundering (``AML'')
compliance program. CBOE believes that these violations are suitable
for incorporation into the Minor Rule Violation Plan because these
violations are generally technical in nature. Further, CBOE will be
able to carry out its regulatory responsibility more quickly and
efficiently by incorporating these violations into its Minor Rule
Violation Plan. As with all of the violations incorporated into CBOE's
Minor Rule Violation Plan, CBOE retains the ability to refer any
violation to its Business Conduct Committee under Rule 17.50 should the
circumstances warrant such referral.
    CBOE is specifically proposing the following modifications to Rule
17.50:

Exercise Limit Violations

    CBOE is proposing to modify its Minor Rule Violation Plan to
incorporate exercise limit violations. Specifically, CBOE is proposing
to modify Rule 17(g)(1) to add exercise limits to the section that
currently addresses position limits. The fine levels for exercise limit
violations will match the fine levels for position limits. In
particular, a first offense will be subject to a $500 fine. A second
offense will be subject to a $1,000 fine and a third offense will be
subject to a $2,500 fine. A fourth offense and any subsequent offenses
will be subject to a $5,000 fine. The number of offenses will be
calculated on a rolling twenty-four month period.
    CBOE believes these changes will serve as an effective deterrent to
future violative conduct. CBOE notes that this proposal is consistent
with the minor rule violation plans in place at the NYSE AMEX LLC
(``AMEX'') and NYSE Arca, Inc. (``ARCA'').\5\ As with other violations
covered under the Exchange's Minor Rule Violation Plan, any egregious
activity may be referred to the Exchange's Business Conduct Committee.
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    \5\ See AMEX Rule 590 Section (g) of Part 1 and ARCA Rule
10.12(k)(i)(21).
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Failure To File FOCUS Reports in a Timely Manner

    CBOE is proposing to make a technical change to clarify that FOCUS
Reports that are received by the Exchange more than ninety days late
will be referred to the Exchange's Business Conduct Committee. The
existing schedule does not clearly reflect how a FOCUS Report that is
received on the ninetieth day would be handled for purposes of
assessing a summary fine. Therefore, CBOE is proposing to change the
reference to ``90+'' days in the sanction schedule to ``91+'' days.

Late Submission of Trading Data

    CBOE is proposing to modify its Minor Rule Violation Plan as it
applies to the failure to respond in a timely manner to a request for
automated submission of trading data (``Blue Sheets'') as set forth in
Rule 17(g)(3). First, CBOE is proposing to increase the look-back
period from twelve months to twenty-four months. CBOE is also proposing
to delete the provision that enabled the Exchange to issue a summary
fine based on the number of days Blue Sheets were submitted late. With
the increased ease of automation for the purpose of submitting trading
information in the securities industry, CBOE believes that this
breakdown is no longer necessary. Therefore, CBOE is proposing to
modify Rule 17.50(g)(3) to enable the Exchange to issue a summary fine
when the Exchange does not receive a response to a Blue Sheet request
within ten (10) days. In conjunction with these changes, CBOE is
proposing to assess a $2,500 fine for a first offense. Any subsequent
offenses within a rolling twenty-four (24) month period would be
subject to a $5,000 fine or referral to the Exchange's Business Conduct
Committee. CBOE believes these changes will serve as an effective
deterrent to future violative conduct.

Failure To Book and Display Limit Orders That Would Improve the
Disseminated Quote

    The Securities and Exchange Commission approved a CBOE filing in
November 2005 \6\ removing the agency function from Designated Primary
Market-Makers (``DPM''). Upon removal of this function, CBOE
established PAR Officials who have since been required to comply with
the limit order display obligations as set forth in Rule 7.12. CBOE
Rule 7.12 defines a PAR Official as ``an Exchange employee or
independent contractor whom the Exchange may designate as being
responsible for (i) operating the PAR workstation in a DPM trading
crowd

with respect to the classes of options assigned to him/her; (ii) when
applicable, maintaining the book with respect to the classes of options
assigned to him/her; and (iii) effecting proper executions of orders
placed with him/her.'' Pursuant to Rule 7.12, PAR Officials may not
maintain any affiliation with a member that is authorized to act as a
Market-Maker. As the obligation to display limit orders is now a
function of CBOE Staff (or a designated independent contractor), CBOE
is proposing to delete this violation type from Rule 17.50(g)(5).
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    \6\ See Securities Exchange Act Release No. 34-52798 (November
18, 2005), 70 FR 71344 (November 28, 2005) (SR-CBOE-2005-46).
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    CBOE is also proposing several technical changes to this provision.
First, the Exchange is proposing to modify the rule references in the
bullets relating to book priority and due diligence. These provisions
inappropriately reference ``Rules 6.45'' and ``Rules 6.73.'' CBOE is
proposing to modify these references to reflect ``Rule 6.45'' and
``Rule 6.73.'' In addition, CBOE is proposing to modify the fine
schedule in a manner that is consistent with the form of other fine
schedules under the Exchange's Minor Rule Violation Plan. In
particular, CBOE is proposing to replace the existing reference to
``Subsequent Offenses'' with a reference to ``4th and 5th Offenses.''
The fine allocated to fourth and fifth offenses for violations of this
provision would range from $3,500 to $5,000. CBOE is also proposing to
replace the note referencing the disposition of 6th and subsequent
offenses with a separate entry for ``Subsequent Offenses.'' Any
violations falling under the ``Subsequent Offenses'' category would be
referred to the Exchange's Business Conduct Committee. As with other
violations covered under the Exchange's Minor Rule Violation Plan, any
egregious activity may be referred to the Exchange's Business Conduct
Committee.

Failure To Submit Trade Data on Trade Date

    CBOE is proposing to increase the look-back period in Exchange Rule
17.50(g)(7) from twelve months to twenty-four months. CBOE believes
that the increased look-back period will serve as a deterrent to
repetitive conduct.

Violations of Exercise and Exercise Advice Rules for American-Style,
Cash-Settled Index Options

    CBOE is proposing to increase the look-back period in Exchange Rule
17.50(g)(9) from twelve months to twenty-four months. CBOE is also
proposing to establish a fixed sanction level for each offense. Under
this proposal, the sanction levels for first and second offenses will
increase from a Letter of Caution to $500 and $1,000 respectively. The
Exchange is proposing to implement a $2,500 fine for a third offense.
Any subsequent violations would either incur a $5,000 fine or be
referred to the Business Conduct Committee for review. In addition,
CBOE is proposing to eliminate the reference to fifth and sixth
offenses. CBOE believes that the increased look-back period as well as
the modified sanction levels will serve as an effective deterrent to
future violative conduct. CBOE is also proposing a technical change to
update the references to the numbered offenses to conform to other
references within Exchange Rule 17.50.

Communications to the Exchange or the Clearing Corporation

    CBOE is proposing to increase the look-back period in Exchange Rule
17.50(g)(10) from twelve months to twenty-four months. CBOE believes
that the increased look-back period will serve as a deterrent to
repetitive conduct.
    CBOE is also proposing a technical change to Exchange Rule
17.50(g)(10) to correct the language in the reference to the third
offense. This section currently references the ``3nd Offense.'' CBOE is
proposing to correct this language to provide ``3rd Offense.''

Trading in Restricted Classes

    Exchange Rule 5.4 provides, with limited exceptions, that CBOE ``*
* * may prohibit any opening purchase or sale transactions in series of
options * * * previously opened...to the extent it deems such action
necessary or appropriate.'' CBOE is proposing to incorporate violations
related to trading in restricted classes into the Minor Rule Violation
Plan under Exchange Rule 17.50(g)(11). CBOE believes that these
violations may be handled more efficiently through the summary fine
process, particularly where the activity is the result of a technical
or inadvertent error.
    CBOE is proposing to implement a fine of $500 for the first
violation in a rolling twenty-four month period. A second violation
within the same period would be allocated a $2,500 fine and a third
violation would be allocated a $5,000 fine. Any subsequent violations
within a rolling twenty-four month period would be referred to the
Exchange's Business Conduct Committee. The Exchange believes that these
violations should be subject to the escalating fine schedule as
proposed because this fine schedule will serve as a deterrent to future
violative conduct. Firms are strongly encouraged to implement systems
that will automatically prohibit opening transactions in restricted
classes. As with other violations, any egregious activity or activity
that is believed to be manipulative may be referred to CBOE's Business
Conduct Committee.

Violations of the Order Protection Rule

    Exchange Rule 6.83(d) provides, with limited exceptions, that
``members may not engage in a pattern or practice of trading through
better prices available on other exchanges.'' CBOE is proposing to
incorporate violations of the trade through provision into CBOE Rule
17.50(g)(12). CBOE is proposing to adopt ranges for the sanction levels
to be imposed according to the degree of the violation(s).
Specifically, the fine for a first offense would range between $500 to
$1,000. A second offense would be assessed a fine between $1,000 to
$2,000 and a third offense would include a fine ranging between $2,500
to $5,000. In addition to the fine for a third offense, CBOE is
proposing to also conduct a Staff Interview, a non-disciplinary
regulatory action, to discuss the violations with the member and the
member's plan for complying with the requirement in the future. Any
subsequent violations will be assessed a $5,000 fine or will be
referred to the Exchange's Business Conduct Committee. CBOE will
maintain internal guidelines that will dictate the degree of conduct
for which a specific sanction will be imposed. CBOE believes that these
violations may be handled more efficiently under its Minor Rule
Violation Plan, particularly where the violation is the result of a
technical problem or inadvertent error. As with other violations, any
egregious activity may be referred to CBOE's Business Conduct
Committee.
    CBOE notes that this provision is consistent with the minor rule
violation plans in place at the AMEX, ARCA and the Boston Options
Exchange Group LLC (``BOX'').\7\
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    \7\ See AMEX Rule 590 Section (g) of Part 1, BOX Rule Chapter X
Section 2(j) and ARCA Rule 10.12(k)(i)(29).
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Locked or Crossed Market Violations

    Exchange Rule 6.84 requires Market-Makers to unlock or uncross a
locked or crossed market. A Market-Maker that fails to unlock or
uncross a locked or crossed market within a reasonable amount of time
is deemed to be in violation of Exchange Rule 6.84. CBOE is proposing
to incorporate violations of Exchange Rule 6.84 into CBOE's Minor

Rule Violation Plan under Exchange Rule 17.50(g)(13). CBOE is proposing
to adopt ranges for the sanction levels to be imposed according to the
degree of the violation(s). Specifically, the fine for a first offense
would range between $500 and $1,000. A second offense would be assessed
a fine between $1,000 to $2,000 and a third offense would include a
fine ranging between $2,500 and $5,000. In addition to the fine for a
third offense, CBOE is proposing to also conduct a Staff Interview, a
non-disciplinary regulatory action, to discuss the violations with the
member and the member's plan for complying with the requirement in the
future. Any subsequent violations will be assessed a $5,000 fine or
will be referred to the Exchange's Business Conduct Committee. CBOE
will maintain internal guidelines that will dictate what specific
sanction will be imposed for a particular violation. CBOE believes that
these violations may be handled more efficiently under its Minor Rule
Violation Plan, particularly where the violation is the result of a
systematic or inadvertent error. As with other violations, any
egregious activity may be referred to CBOE's Business Conduct
Committee.
    CBOE notes that this provision is consistent with the minor rule
violation plans in place at the AMEX, BOX and ARCA.\8\
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    \8\ See AMEX Rule 590 Section (g) of Part 1, BOX Rule Chapter X
Section 2(g) and ARCA Rule 10.12(k)(i)(35).
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Failure To Meet Market-Maker Obligations

    CBOE Market-Makers are required to meet certain obligations,
including, but not limited to, the following: (i) Maintaining
continuous electronic quotes \9\ in an applicable percentage of the
series in each of a Market-Maker's\10\ appointed classes; (ii) quote
within the maximum bid/ask differential in each of a Market-Maker's
appointed classes as set forth in Exchange Rule 8.7(b)(iv); (iii)
comply with the initial quote volume requirements set forth in Exchange
Rule 8.7; and (iv) ensure that a trading rotation is initiated promptly
following the opening of the underlying security (as applicable).\11\
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    \9\ Exchange Rule 1.1(ccc) provides: ``With respect to a Market-
Maker who is obligated to provide continuous electronic quotes on
the Hybrid Trading System (``Hybrid Market-Maker''), the Hybrid
Market-Maker shall be deemed to have provided ``continuous
electronic quotes'' if the Hybrid Market-Maker provides electronic
two-sided quotes for 99% of the time that the Hybrid Market-Maker is
required to provide electronic quotes in an appointed option class
on a given trading day. If a technical failure or limitation of a
system of the Exchange prevents the Hybrid Market-Maker from
maintaining, or prevents the Hybrid Market-Maker from communicating
to the Exchange, timely and accurate electronic quotes in a class,
the duration of such failure shall not be considered in determining
whether the Hybrid Market-Maker has satisfied the 99% quoting
standard with respect to that option class. The Exchange may
consider other exceptions to this continuous electronic quote
obligation based on demonstrated legal or regulatory requirements or
other mitigating circumstances.''
    \10\ Exchange Rule 8.7 requires Market-Makers to continuously
quote in 60% of the series in their appointed classes for those
series with a time to expiration of less than nine months. Exchange
Rule 8.15A requires Lead Market-Makers to provide continuous quotes
in 90% of the series in their appointed classes. Exchange Rule 8.85
requires Designated Primary Market-Makers to provide continuous
quotes in 90% of the series in multiply-listed, appointed classes
and 100% of the series in singly-listed, appointed classes. Lastly,
Exchange Rule 8.93 requires Electronic Designated Primary Market-
Makers to provide continuous quotes in 90% of their appointed
classes (or, alternatively respond to 98% of Request for Quotes if
such functionality is available in an allocated class).
    \11\ Exchange Rule 8.15A requires Lead Market-Makers to ensure
that a trading rotation is initiated in accordance with Rule 6.2B in
100% of the series in their appointed classes. Exchange Rule 8.85
requires Designated Primary Market-Makers to ensure that a trading
rotation is initiated in accordance with Rule 6.2B in 100% of the
series in their appointed classes. Exchange Rule 8.93 requires
Electronic Designated Primary Market-Makers to ensure that a trading
rotation is initiated in accordance with Rule 6.2B in 100% of the
series in their appointed classes.
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    CBOE is proposing to incorporate violations relating to Market-
Maker Obligations into the Exchange's Minor Rule Violation Plan under
Exchange Rule 17.50(g)(14). CBOE believes that these violations may be
handled more efficiently under the Minor Rule Violation Plan. CBOE is
proposing to adopt ranges for the sanction levels to be imposed
according to the degree of the violation(s). Specifically, CBOE is
proposing to assess fines ranging from $2,000-$4,000 for a first
offense and $4,000-$5,000 for a second offense. Any subsequent
violations will be referred to the Exchange's Business Conduct
Committee. CBOE will maintain internal guidelines that will dictate the
sanction that will be imposed for a particular violation (based on the
degree of the violation). As with other violations, any egregious
activity may be referred to CBOE's Business Conduct Committee.
    Several other self-regulatory organizations have incorporated fines
related to quoting obligation violations into a minor rule violation
plan. For example, Chapter X, Sections 2(c) and 2(d) of the BOX rules
set forth the fine schedule for violations of required quotation
parameters and continuous quoting requirements. In addition, the
International Securities Exchange, LLC (``ISE'') Rule 1614(d)(6) sets
forth the fine schedule for violations of required quoting parameters.
AMEX Rule 590 Section (g) of Part 1, ARCA Rule 10.12(k)(i)(39) and ARCA
Rule 10.12(k)(i)(41) provide fine schedules for various types of
quoting obligation violations.

Failure to Accurately Report Position and Account Information

    CBOE is proposing to incorporate violations for failing to
accurately report position and account information in accordance with
CBOE Rule 4.13 into the Minor Rule Violation Plan. The Exchange
believes most of these violations are inadvertent and technical in
nature. Processing routine violations under the Minor Rule Violation
Plan would decrease the administrative burden of regulatory and
enforcement staff as well as that of the Business Conduct Committee. In
addition, staff would be able to more expeditiously process routine
violations under the Minor Rule Violation Plan.
    CBOE is proposing to assess a $500 fine for a first offense, a
$1,000 fine for a second offense and a $2,500 fine for a third offense.
Any subsequent offenses would be assessed a $5,000 fine or would be
referred to the Business Conduct Committee. The number of offenses will
be calculated on a rolling twenty-four month period. CBOE believes that
establishing a rolling twenty-four month period for cumulative
violations will serve as an effective deterrent to future violative
conduct. As with other violations covered under the Exchange's Minor
Rule Violation Plan, any egregious activity may be referred to the
Exchange's Business Conduct Committee.
    Among other things, CBOE Rule 4.13 requires each member to report
to the Exchange the account and position information of any customer
who, acting alone, or in concert with others, on the previous business
day maintained aggregate long or short positions on the same side of
the market of 200 or more contracts of any single class of option
contracts dealt in on the Exchange. Members report this information on
the Large Option Position Report. CBOE, as a member of the Intermarket
Surveillance Group (the ``ISG''), as well as certain other self-
regulatory organizations (``SROs'') executed and filed on October 29,
2007 with the Securities and Exchange Commission, a final version of
the Agreement pursuant to Section 17(d) of the Securities Exchange Act
of 1934 (as amended) (the ``Agreement'') \12\ and as amended on

April 11, 2008 \13\ and October 9, 2008.\14\ The participants to the
Agreement incorporated the surveillance and sanctions of large options
position reporting violations into the Agreement as of November 1,
2008. As such, the SROs have agreed that their respective rules
concerning the reporting of large options positions, are common rules.
As a result, this amendment to the Minor Rule Violation Plan will
further result in the consistency of the sanctions among the SROs who
are signatories to the Agreement with respect to regulatory actions
arising from large option position reporting surveillance.
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    \12\ See Securities Exchange Act Release No. 34-56941 (December
11, 2007).
    \13\ See Securities Exchange Act Release No. 34-57649 (April 11,
2008).
    \14\ See Securities Exchange Act Release No. 34-58765 (October
9, 2008).
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Failure To Provide Prior Capital Withdrawal Notice

    With limited exceptions, Rule 15c3-1(e)(1) under the Act \15\
requires brokers or dealers to provide notice to the Commission (in
Washington, DC and the applicable regional office), the broker or
dealer's Designated Examining Authority and, as applicable, the
Commodity Futures Trading Commission at least ``two business days prior
to any withdrawals, advances or loans if those withdrawals, advances or
loans on a net basis exceed in the aggregate in any 30 day period, 30
percent of the broker or dealer's net capital.'' CBOE is proposing to
incorporate violations of Rule 15c3-1(e)(1) under the Act \16\ into the
Exchange's Minor Rule Violation Plan under Exchange Rule 17.50(g)(16).
CBOE believes that these violations may be handled more efficiently
under the Minor Rule Violation Plan.
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    \15\ 17 CFR 240.15c3-1(e)(1).
    \16\ 17 CFR 240.15c3-1(e)(1)(i).
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    CBOE is proposing to assess a $2,500 fine for a first offense and a
$5,000 fine for a second offense. Any subsequent offenses would be
referred to the Business Conduct Committee. The number of offenses
shall be calculated on a rolling twenty-four month period. CBOE
believes that establishing a rolling twenty-four month period for
cumulative violations will serve as an effective deterrent to future
violative conduct. As with other violations covered under the
Exchange's Minor Rule Violation Plan, any egregious activity may be
referred to the Exchange's Business Conduct Committee.

Failure To Provide Post Capital Withdrawal Notice

    With limited exceptions, Rule 15c3-1(e)(1) under the Act\17\
requires brokers or dealers to provide notice to the Commission (in
Washington, DC and the applicable regional office), the broker or
dealer's Designated Examining Authority and, as applicable, the
Commodity Futures Trading Commission within ``two business days after
any withdrawals, advances or loans if those withdrawals, advances or
loans on a net basis exceed in the aggregate in any 30 calendar day
period, 20 percent of the broker or dealer's excess net capital.'' CBOE
is proposing to incorporate violations of Rule 15c3-1(e)(1)(ii) under
the Act\18\ into the Exchange's Minor Rule Violation Plan under
Exchange Rule 17.50(g)(17). CBOE believes that these violations may be
handled more efficiently under the Exchange's Minor Rule Violation
Plan.
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    \17\ Supra at note 8.
    \18\ 17 CFR 240.15c3-1(e)(1)(ii).
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    CBOE is proposing to assess a $1,000 fine for a first offense and a
$2,500 fine for a second offense. Any subsequent offenses would be
referred to the Business Conduct Committee. The number of offenses
shall be calculated on a rolling twenty-four month period. CBOE
believes that establishing a rolling twenty-four month period for
cumulative violations will serve as an effective deterrent to future
violative conduct. As with other violations covered under the
Exchange's Minor Rule Violation Plan, any egregious activity may be
referred to the Exchange's Business Conduct Committee.

Failure To Designate and Identify AML Compliance Contact

    Exchange Rule 4.20 requires each member organization (and each
member not associated with a member organization) to develop and
implement a written AML compliance program. This rule requires a member
or member organization (as applicable) to designate and identify to the
Exchange a person or persons responsible for implementing and
monitoring the day-to-day operations and internal controls of the AML
compliance program. Members and member organizations (as applicable)
are also required to provide prompt notification to the Exchange
regarding any change in such designation. CBOE believes that violations
arising from a member or member organization's failure to provide such
designation or notification of any change in such designation would be
handled more efficiently under the Exchange's Minor Rule Violation
Plan. CBOE is proposing to incorporate violations related to the
failure to designate and identify the AML compliance program contact
into the Minor Rule Violation Plan under Exchange Rule 17.50(g)(18).
    CBOE is proposing to assess a $1,000 fine for a first offense and a
$2,500 fine for a second offense. Any subsequent offenses would be
referred to the Business Conduct Committee. The number of offenses
shall be calculated on a rolling twenty-four month period. CBOE
believes that establishing a rolling twenty-four month period for
cumulative violations will serve as an effective deterrent to future
violative conduct. As with other violations covered under the
Exchange's Minor Rule Violation Plan, any egregious activity may be
referred to the Exchange's Business Conduct Committee.
    CBOE notes that this provision is consistent with the minor rule
violation plans in place at the ARCA and the Financial Industry
Regulatory Authority (``FINRA'').\19\
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    \19\ See ARCA Rule 10.12(k)(iii)(12) and FINRA Rule 9217 (as it
applies to New York Stock Exchange Rule 445(4)).
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Amendments to Exchange Rule 17.50 Interpretations and Policies

    CBOE is proposing to delete Interpretation and Policy .01(a) from
Exchange Rule 17.50. Exchange Rule 17.50(g)(1) currently sets forth the
sanction levels under the Minor Rule Violation Plan for position limit
violations. Prior to July 2008, Exchange Rule 17.50(g)(1)(a) set forth
the sanction levels under the Minor Rule Violation Plan for position
limit violations of non-member customers and Exchange Rule
17.50(g)(1)(b) set forth the sanction levels for position limit
violations for all other accounts. The Commission approved a rule
filing eliminating the distinction between non-member customers and all
other accounts in Exchange Rules 17.50(g)(1)(a) and 17.50(g)(1)(b) in
July 2008 and incorporating the sanction levels for position limit
violations under Exchange Rule 17.50(g)(1).\20\ Interpretation and
Policy .01(a) specifically references and provides clarification for
Rule 17.50(g)(1)(a). Since this provision no longer exists, this
Interpretation and Policy is obsolete. Therefore, CBOE is proposing to
delete Interpretation and Policy .01(a). As a result of this change,
CBOE is also proposing to delete the section

designation of Interpretation and Policy .01(b) as this distinction is
no longer necessary under Interpretation and Policy .01.
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    \20\ See Securities Exchange Act Release No. 34-58119 (July 8,
2008), 73 FR 40646 (July 15, 2008) (SR-CBOE-2008-053).
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Violations of Trading Conduct and Decorum Policies

    CBOE is proposing to issue a new Regulatory Circular to update and
replace Regulatory Circular RG09-26. CBOE is proposing to modify the
Circular to (i) establish a rolling twenty-four month look-back period
for all offenses; (ii) establish fixed fine levels for Class A and
Class B Offenses; (iii) change the classification of certain offenses;
and (iv) remove obsolete or duplicative violations from the list of
Class A and Class B Offenses. CBOE has attached the proposed changes to
the revised circular in Exhibit 5.
    CBOE is proposing to increase the look-back period from twelve
months to twenty-four months for Class A Offenses and Class B Offenses.
CBOE believes that the increased look-back period will serve as a
deterrent for future similar conduct.
    CBOE is also proposing to adopt fixed fine levels for trading
conduct and decorum violations to promote consistency in the
application of these fines. For Class A Offenses, CBOE will assess a
fine of $1,000 for the first violation, $2,500 for the second violation
and $5,000 for the third violation. CBOE is also proposing to remove
the reference to ``Subsequent Offenses'' for Class A Offenses. CBOE
believes that any member or member organization that is cited for more
than three Class A Offenses within a rolling twenty-four month period
should be referred to the Business Conduct Committee for formal
disciplinary action. The nature of these violations warrants formal
disciplinary action where recidivist behavior is involved. For Class B
Offenses, CBOE is proposing to assess a fine of $250 for a first
offense, $500 for a second offense, $1,000 for a third offense and
$2,500 for any subsequent offenses.
    CBOE is proposing to move one violation from a Class B Offense to a
Class A Offense. Market-Makers are obligated to respond to a request
for a market by an Order Book Official or PAR Official. Failure to
respond to such a request has historically been considered a Class B
Offense. Due to the nature of this violation, CBOE believes that it is
more appropriate for this violation to be classified as a Class A
Offense. In addition, CBOE is proposing to remove the qualification
that a response must be provided to an Order Book Official since the
obligation to respond to a market is not limited to requests for quotes
from Order Book Officials. For example, Exchange Rule 8.7(d) sets forth
the requirements for Market-Makers to respond to a request for quote
from members, including floor brokers and PAR Officials.
    CBOE is proposing to remove quote width violations from the Class A
Offense list as CBOE is proposing that this violation be covered under
Exchange Rule 17.50(g)(14). CBOE is also proposing to delete the Class
A Offense relating to Violations of Rule 8.51 (Firm Quote) as this
provision is duplicative. Firm quote violations are generally addressed
under Exchange Rule 17.50(g)(5).
    CBOE is proposing to clarify that the Class B Offense related to
smoking applies to the use of any tobacco products in unauthorized
areas. CBOE does not permit the use of any tobacco products inside the
Exchange building. Further, the State of Illinois prohibits smoking in
any public building and within fifteen feet of any public entrance.\21\
---------------------------------------------------------------------------

    \21\ See Illinois Public Act 095-0017.
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    CBOE is proposing to delete a Class A Offense for Enabling/
Assisting a Suspended Member or Associated Person to Gain Improper
Access to the Floor. CBOE is also proposing to delete a Class B Offense
for Gaining/Enabling Improper Access to the Floor. CBOE has
significantly increased its physical security restrictions in recent
years. Access to the trading floor requires use of a valid badge and a
fingerprint scan associated with that badge. Further, CBOE believes
that any attempt to enable improper access compromises the security of
the Exchange. Such violations are considered very serious in nature and
should be reviewed by the Business Conduct Committee.
    CBOE is proposing to delete the Class A Offense for Effecting or
Attempting to Effect a Transaction with No Public Outcry. CBOE no
longer believes that this conduct is minor in nature. CBOE is also
proposing to delete the Class B Offenses relating to Improper Use of
Runners' Aisle, Trading in the Aisle and Impermissible Use of Member
Phones. CBOE no longer sees these types of violations. CBOE is
proposing to remove the Class B Offense of a Visitor Badge Returned
Late or Not Returned. In addition, CBOE is proposing to delete a Class
B Offense relating to a DPM Failure to Activate or Deactivate RAES.
Since RAES is no longer available at CBOE, this provision is obsolete.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\22\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\23\ in particular, in that it
would promote just and equitable principles of trade and protect
investors and the public interest. The Exchange believes that the
proposed rule changes will strengthen its ability to carry out its
oversight responsibilities as a self-regulatory organization and
reinforce its surveillance and enforcement functions. Additionally,
this proposed rule change will promote consistency in minor rule
violations and respective SRO reporting obligations as set forth
pursuant to Regulation 240.19d-1(c)(2) of the Act.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(6).
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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 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

    The Exchange neither solicited nor received comments on the
proposal.

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 self-regulatory organization 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<EMAIL_ADDRESS>Please include
File

Number SR-CBOE-2009-037 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2009-037. 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 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-2009-037 and should be
submitted on or before July 27, 2009.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12) and 200.30-3(a)(44).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-15775 Filed 7-2-09; 8:45 am]
BILLING CODE 8010-01-P


[Federal Register Volume 77, Number 84 (Tuesday, May 1, 2012)]
[Notices]
[Page 25783]
[FR Doc No: 2012-10421]

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DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

[Docket Number FRA-2012-0034]

Petition for Waiver of Compliance

    In accordance with Part 211 of Title 49 Code of Federal Regulations
(CFR), this document provides the public notice that by a document
dated March 21, 2012, the City of Nevada, Iowa (City), has petitioned
the Federal Railroad Administration (FRA) for a waiver of compliance
from certain provisions of the Federal railroad safety regulations
contained at 49 CFR part 222. FRA assigned the petition Docket Number
FRA-2012-0034.
    The City is seeking a waiver from the provisions of 49 CFR
222.35(b), which requires active grade crossing warning devices at
public crossings within a new quiet zone be equipped with constant
warning time devices, so that the active grade crossing warning devices
at South West 4th Street (DOT 199653D) are not required to be
equipped with a constant warning time device in order to be included in
a new quiet zone.
    A copy of the petition, as well as any written communications
concerning the petition, is available for review online at
www.regulations.gov and in person at the U.S. Department of
Transportation's (DOT) Docket Operations Facility, 1200 New Jersey
Avenue SE., W12-140, Washington, DC 20590. The Docket Operations
Facility is open from 9 a.m. to 5 p.m., Monday through Friday, except
Federal Holidays.
    Interested parties are invited to participate in these proceedings
by submitting written views, data, or comments. FRA does not anticipate
scheduling a public hearing in connection with these proceedings since
the facts do not appear to warrant a hearing. If any interested party
desires an opportunity for oral comment, they should notify FRA, in
writing, before the end of the comment period and specify the basis for
their request.
    All communications concerning these proceedings should identify the
appropriate docket number and may be submitted by any of the following
methods:
     Web site: http://www.regulations.gov. Follow the online
instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: Docket Operations Facility, U.S. Department of
Transportation, 1200 New Jersey Avenue SE., W12-140, Washington, DC
20590.
     Hand Delivery: 1200 New Jersey Avenue SE., Room W12-140,
Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday,
except Federal Holidays.
    Communications received by June 15, 2012 will be considered by FRA
before final action is taken. Comments received after that date will be
considered as far as practicable.
    Anyone is able to search the electronic form of any written
communications and comments received into any of our dockets by the
name of the individual submitting the comment (or signing the comment,
if submitted on behalf of an association, business, labor union, etc.).
You may review DOT's complete Privacy Act Statement in the Federal
Register published on April 11, 2000 (Volume 65, Number 70; Pages
19477-78), or online at http://www.dot.gov/privacy.html.

    Issued in Washington, DC, on April 25, 2012.
Ron Hynes,
Acting Deputy Associate Administrator for Regulatory and Legislative
Operations.
[FR Doc. 2012-10421 Filed 4-30-12; 8:45 am]
BILLING CODE 4910-06-P