[Federal Register: December 21, 2007 (Volume 72, Number 245)]
[Notices]
[Page 72804-72808]
[DOCID:fr21de07-135]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56971; File No. SR-CBOE-2007-106]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Amendment No. 1 and Order Granting
Accelerated Approval of Proposed Rule Change as Modified by Amendment
No. 1 Relating to CBOE Rules Governing Doing Business With the Public

December 14, 2007.

I. Introduction

    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ on September 5, 2007,
Chicago Board Options Exchange, Incorporated (``CBOE'' or the
``Exchange''), filed with the Securities and Exchange Commission (the
``Commission'') a proposed rule change relating to the Exchange's rules
governing doing business with the public. On September 21, 2007, the
Commission issued a release noticing the proposed rule change, which
was published for comment in the Federal Register on September 27,
2007.\3\ The comment period expired on October 18, 2007. The Commission
received one comment letter in response to the proposed rule change.\4\
On November 13, 2007, CBOE filed Amendment No. 1 to amend the proposed
rule change and respond to the comment letter.\5\ This order provides
notice of the proposed rule change, as modified by Amendment No. 1, and
approves the proposed rule change as amended on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56492 (Sept. 21,
2007), 72 FR 54952 (Sept. 27, 2007).
    \4\ See Letter to Nancy Morris, Secretary, Commission, from
Melissa MacGregor, Vice President and Assistant General Counsel,
Securities Industry and Financial Markets Association (Oct. 16,
2007) (``SIFMA Letter'').
    \5\ Amendment No. 1 proposes revisions to CBOE Rule 9.2.02 to
clarify the review of the acceptance of an options discretionary
account must be performed by a Series 4 Registered Options Principal
(``ROP'') and to CBOE Rule 9.21 to replace references to a
Compliance Registered Options Principal (``CROP'') with references
to a ROP. In addition, Amendment No. 1 responds to the SIFMA Letter.
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II. Description of the CBOE Proposal

    The Exchange proposes to amend certain rules that govern an
Exchange member's conduct in doing business with the public.
Specifically, the proposed rule change would require member
organizations to integrate the responsibility for supervision of a
member organization's public customer options business into its overall
supervisory and compliance program. In addition, the Exchange proposes
to amend certain rules to strengthen member organizations' supervisory
procedures and internal controls as they relate to a member's public
customer options business.

A. Integration of Options Supervision

    The purpose of the proposed rule change is to create a supervisory
structure for options that is similar to that required by New York
Stock Exchange (``NYSE'') and National Association of Securities
Dealers (``NASD'') rules.\6\ The proposed rule change would eliminate
the requirement that member organizations qualified to do a public
customer business in options must designate a single person to act as
Senior Registered Options Principal (``SROP'') for the member
organization and that each such member organization designate a
specific individual as a CROP. Instead, member organizations would be
required to integrate the SROP and CROP functions into their overall
supervisory and compliance programs.
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    \6\ See NYSE Rule 342 and NASD Rule 3010. On July 26, 2007, the
Commission approved a proposed rule change filed by NASD to amend
NASD's Certificate of Incorporation to reflect its name change to
Financial Industry Regulatory Authority Inc., or FINRA, in
connection with the consolidation of the member firm regulatory
functions of NASD and NYSE Regulation, Inc. See Securities Exchange
Act Release No. 56146 (July 26, 2007). The FINRA rulebook currently
consists of both NASD Rules and certain NYSE Rules that FINRA has
incorporated. See FINRA Rules, http://www.finra.org/RulesRegulation/FINRARules/index.htm
 (last visited Dec. 10, 2007).

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    The SROP concept was first introduced by CBOE during the early
years of the development of the listed options market. Previously,
under CBOE rules, member organizations were required to designate one
or more persons qualified as ROPs having supervisory responsibilities
in respect to the member organization's options business. As the number
of ROPs at larger member organizations began to increase, CBOE imposed
an additional requirement that member organizations designate one of
their ROPs as the SROP. This was intended to eliminate confusion as to
where the compliance and supervisory responsibilities lay by
centralizing in a single supervisory officer overall responsibility for
the supervision of a member organization's options activities.\7\
Subsequently, following the recommendation of the Commission's Options
Study, CBOE and other options exchanges required member organizations
to designate a CROP to be responsible for the member organization's
overall compliance program in respect to its options activities.\8\ The
CROP may be the same person who is designated as SROP.
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    \7\ Report of the Special Study of the Options Market (``Options
Study''), p. 316, n. 11 (December 22, 1978).
    \8\ Id. at p. 335.
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    Since the SROP and CROP requirements were first imposed, the
supervisory function in respect to the options activities of most
securities firms has been integrated into the matrix of supervisory and
compliance functions in respect to the firms' other securities
activities. According to CBOE, this not only reflects the maturity of
the options market, but also recognizes the ways in which the uses of
options themselves have become more integrated with other securities in
the implementation of particular strategies. Thus, the current
requirement for a separately designated senior supervisor in respect to
all aspects of a member organization's options activities, rather than
clarifying the allocation of supervisory responsibilities within the
member organization, may have just the opposite effect by failing to
take into account the way in which these

responsibilities are actually assigned. In addition, according to CBOE,
by permitting supervision of a member organization's options activities
to be handled in the same manner as the supervision of its other
securities activities as well as its futures activities, the proposed
rule change ensures that supervisory responsibility over each segment
of the member organization's business is assigned to the best qualified
persons in the member organization, thereby enhancing the overall
quality of supervision. The same holds true for the compliance
function.
    For example, most member organizations have designated one person
to have supervisory responsibility over the application of margin
requirements and other matters pertaining to the extension of credit.
The proposed rule change would enable a member organization to include
within the scope of such a person's duties the supervision over the
proper margining of options accounts, thereby assuring that the most
qualified person is charged with this responsibility and at the same
time eliminating any uncertainty that might now exist as to whether
this responsibility lies with the senior credit supervisor or with the
SROP.
    Similarly, the proposed rule change would allow a member
organization to specifically designate one or more individuals as being
responsible for approving a ROP's acceptance of discretionary accounts
\9\ and exceptions to a member organization's suitability standards for
trading uncovered short options.\10\ The proposed rule change would
allow member organizations the flexibility to assign such
responsibilities, which formerly rested with the SROP and/or CROP, to
more than one ROP-qualified individual where the member organization
believes it advantageous to do so to enhance its supervisory or
compliance structure. Typically, a member organization may wish to
divide these functions on the basis of geographic region or functional
considerations. The proposed amendment to Rule 9.2 would clarify the
qualification requirements for individuals designated as ROPs.\11\ The
proposed amendment to Rule 9.3 would specify the registration
requirements for individuals who accept orders from non-broker-dealer
customers.\12\
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    \9\ See proposed Rule 9.10(a).
    \10\ See proposed Rule 9.7(f)(3).
    \11\ See proposed Rules 9.2.01 and 9.2.02.
    \12\ See proposed Rule 9.3.01.
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    The proposed rule change would require options discretionary
accounts, the acceptance of which must be approved by a ROP-qualified
individual (other than the ROP who accepted the account), to be
supervised in the same manner as the supervision of other securities
accounts that are handled on a discretionary basis. The proposed rule
change would eliminate the requirement that discretionary options
orders be approved on the day of entry by a ROP (with one exception, as
described below). According to CBOE, this requirement predates the
Options Study and is not consistent with the use of supervisory tools
in computerized format or exception reports generated after the close
of a trading day. No similar requirement exists for supervision of
other securities accounts that are handled on a discretionary
basis.\13\ Discretionary orders must be reviewed in accordance with a
member organization's written supervisory procedures. According to
CBOE, the proposed rule change would ensure that supervisory
responsibilities are assigned to specific ROP-qualified individuals,
thereby enhancing the quality of supervision.
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    \13\ See, e.g., NYSE Rule 408.
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    The proposed rule change would revise Exchange Rule 9.10 by adding,
as Interpretation and Policy .01, a requirement that any member
organization that does not utilize computerized surveillance tools for
the frequent and appropriate review of discretionary account activity
must establish and implement procedures to require ROP-qualified
individuals who have been designated to review discretionary accounts
to approve and initial each discretionary order on the day entered. The
Exchange believes that any member organization that does not utilize
computerized surveillance tools to monitor discretionary account
activity should continue to be required to perform the daily manual
review of discretionary orders.
    Under the proposed rule change, options discretionary accounts
would continue to receive frequent appropriate supervisory review by
designated ROP-qualified individuals. Additionally, member
organizations would continue to be required to designate ROP-qualified
individuals to review and approve the acceptance of options
discretionary accounts in order to determine whether the ROP accepting
the account had a reasonable basis for believing that the customer was
able to understand and bear the risks of the proposed strategies or
transactions. According to CBOE, this requirement would provide an
additional level of supervisory audit over options discretionary
accounts that does not exist for other securities discretionary
accounts.
    In addition, the proposed rule change would require that each
member organization submit to the Exchange a written report by April 1
of each year that details the member organization's supervision and
compliance effort, including its options compliance program, during the
preceding year and reports on the adequacy of the member organization's
ongoing compliance processes and procedures.\14\
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    \14\ See proposed Rule 9.8(g), which is modeled after NYSE Rule
342.30.
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    Proposed Rule 9.8(h) would require that each member organization
submit, by April 1 of each year, a copy of the Rule 9.8(g) annual
report to one or more of its control persons or, if the member
organization has no control person, to the audit committee of its board
of directors or its equivalent committee or group.\15\
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    \15\ Proposed Rule 9.8(h) is modeled after NYSE Rule 354.
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    Proposed Rule 9.8(g) would provide that a member organization that
specifically includes its options compliance program in a report that
complies with substantially similar requirements of NYSE and NASD rules
will be deemed to have satisfied the requirements of Rules 9.8(g) and
9.8(h).
    Additionally, where appropriate, the proposed rule change would
delete references to SROP and CROP in Exchange Rules 3.6A and
26.10.\16\
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    \16\ For example, the proposed rule change, as amended, replaces
references to CROP in Rule 9.21 with references to ROP.
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    Although the proposed rule change would eliminate entirely the
positions and titles of the SROP and CROP, member organizations would
still be required to designate a single general partner or executive
officer to assume overall authority and responsibility for internal
supervision, control of the member organization and compliance with
securities laws and regulations.\17\ Member organizations would also be
required to designate specific qualified individuals as having
supervisory or compliance responsibilities over each aspect of the
member organization's options activities and to set forth the names and
titles of these individuals in their written supervisory
procedures.\18\ This is consistent with the integration of options
supervision into the overall supervisory and compliance structure of a
member organization. In connection with the approval of the proposed
rule change, the Exchange intends to review member organizations'
written supervisory and compliance procedures

in the course of the Exchange's routine examination of member
organizations to ensure that supervisory and compliance
responsibilities are adequately defined.
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    \17\ See proposed Rule 9.8(a).
    \18\ See proposed Rule 9.8.01.
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    The Exchange believes that the proposed rule change recognizes that
options are no longer in their infancy, have become more integrated
with other securities in the implementation of particular strategies,
and thus should not continue to be regulated as though they are a new
and experimental product. The Exchange believes that the proposed rule
change is appropriate and does not materially alter the supervisory
operations of member organizations. The Exchange believes the
supervisory and compliance structure in place for non-options products
at most member organizations is not materially different from the
structure in place for options.

B. Supervisory Procedures and Internal Controls

    The Exchange also proposes to amend certain rules to strengthen
member and member organizations' supervisory procedures and internal
controls as they relate to a member's public customer options business.
The proposed rule changes described below are modeled after NYSE and
NASD rules approved by the Commission in 2004.\19\ The Exchange
believes the following proposal to strengthen member supervisory
procedures and internal controls is appropriate and consistent with the
preceding proposal to integrate options and non-options sales practice
supervision and compliance functions.
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    \19\ See Securities Exchange Act Release No. 49882 (June 17,
2004), 69 FR 35108 (June 23, 2004) (SR-NYSE-2002-36) (Approval
Order), and Securities Exchange Act Release No. 49883 (June 17,
2004), 69 FR 35092 (June 23, 2004) (SR-NASD-2002-162) (Approval
Order).
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    The proposed revisions to Exchange Rule 9.8(a)(3) require the
development and implementation of written policies and procedures
reasonably designed to supervise sales managers and other supervisory
personnel who service customer options accounts (i.e., who act in the
capacity of a registered representative).\20\ This requirement applies
to branch office managers, sales managers, regional/district sales
managers, or any person performing a similar supervisory function. Such
policies and procedures are expected to encompass all options sales-
related activities. Proposed Rule 9.8(a)(3)(i) would require that
supervisory reviews of producing sales managers be conducted by a
qualified ROP who is either senior to, or otherwise ``independent of,''
the producing manager under review.\21\ This provision is intended to
ensure that all options sales activity of a producing manager is
monitored for compliance with applicable regulatory requirements by
persons who do not have a personal interest in such activity.
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    \20\ Proposed Rule 9.8(a)(3) is modeled after NYSE Rule 342.19.
    \21\ An ``otherwise independent'' person is defined in proposed
Rule 9.8(a)(3)(i) as one who: may not report either directly or
indirectly to the producing manager under review; must be situated
in an office other than the office of the producing manager; must
not otherwise have supervisory responsibility over the activity
being reviewed; and must alternate such review responsibility with
another qualified person every two years or less. Further, if a
person designated to review a producing manager receives an override
or other income derived from that producing manager's customer
activity that represents more than 10% of the designated person's
gross income derived from the member organization over the course of
a rolling twelve-month period, the member organization must
establish alternative senior or otherwise independent supervision of
that producing manager to be conducted by a qualified ROP other than
the designated person receiving the income.
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    Proposed Rule 9.8(a)(3)(ii) would provide a limited exception for
members so limited in size and resources that there is no qualified
person senior to, or otherwise independent of, the producing manager to
conduct the review. In this case, the reviews may be conducted by a
qualified ROP to the extent practicable. Under proposed Rule
9.8(a)(3)(iii), a member relying on the limited size and resources
exception would be required to document the factors used to determine
that compliance with each of the ``senior'' or ``otherwise
independent'' standards of Rule 9.8(a)(3)(i) is not possible, and that
the required supervisory systems and procedures in place with respect
to any producing manager comply with the provisions of Rule
9.8(a)(3)(i) to the extent practicable.
    Proposed paragraph (a)(3)(iv) of Rule 9.8 would provide that a
member organization that complies with requirements of NYSE or NASD
rules that are substantially similar to the requirements in Rules
9.8(a)(3)(i), (a)(3)(ii) and (a)(3)(iii) will be deemed to have met
such requirements.
    Proposed Rule 9.8(c)(i) would require member organizations to
develop and maintain adequate controls over each of their business
activities. The proposed rule further would require that such controls
include the establishment of procedures to independently verify and
test the supervisory systems and procedures for those business
activities. Member organizations are required to include in the annual
report prepared pursuant to Rule 9.8(g) a review of the member
organization's efforts in this regard, including a summary of the tests
conducted and significant exceptions identified. The Exchange believes
proposed Rule 9.8(c)(i) would enhance the quality of member
organizations' supervision.\22\ Proposed paragraph (c)(ii) of Rule 9.8
would provide that a member organization that complies with
requirements of NYSE or NASD rules that are substantially similar to
the requirements in Rule 9.8(c)(i) will be deemed to have met such
requirements.
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    \22\ Proposed Rule 9.8(c)(i) is modeled after NYSE Rule 342.23.
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    Proposed Rule 9.8(d) would establish requirements for branch office
inspections similar to the requirements of NYSE Rule 342.24.
Specifically, proposed Rule 9.8(d) would require a member organization
to inspect each supervisory branch office at least annually and each
non-supervisory branch office at least once every three years.\23\ The
proposed rule further would require that persons who conduct a member
organization's annual branch office inspection must be independent of
the direct supervision or control of the branch office (i.e., not the
branch office manager, or any person who directly or indirectly reports
to such manager, or any person to whom such manager directly reports).
The Exchange believes that requiring branch office inspections be
conducted by someone who has no significant financial interest in the
success of a branch office should lead to more objective and vigorous
inspections.
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    \23\ Proposed Rules 9.8(d)(1)(i) and (ii) would provide members
with two exceptions from the annual branch office inspection
requirement: a member may demonstrate to the satisfaction of the
Exchange that other arrangements may satisfy the Rule's requirements
for a particular branch office, or based upon a member
organization's written policies and procedures providing for a
systematic risk-based surveillance system, the member organization
submits a proposal to the Exchange and receives, in writing, an
exemption from this requirement pursuant to Rule 9.8(e).
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    Under proposed Rule 9.8(e), any member organization seeking an
exemption, pursuant to Rule 9.8(d)(1)(ii), from the annual branch
office inspection requirement would be required to submit to the
Exchange written policies and procedures for systematic risk-based
surveillance of its branch offices, as defined in Rule 9.8(e). Proposed
Rule 9.8(f) would require that annual branch office inspection programs
include, at a minimum, testing and verification of specified internal
controls.\24\ Proposed paragraph (d)(3) of Rule 9.8 would provide that
a member organization that complies with requirements of NYSE or NASD
rules that are substantially similar to the requirements in Rules
9.8(d), (e) and (f)

will be deemed to have met such requirements.
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    \24\ Proposed Rules 9.8(e) and (f) are modeled after NYSE Rules
342.25 and 342.26.
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    In conjunction with the proposed changes to Rules 9.8(d), (e) and
(f), the Exchange proposes to amend Rule 9.6 to define ``branch
office'' in a way that is substantially similar to the definition of
branch office in NYSE Rule 342.10.
    Proposed Rule 9.8(g)(4) would require a member organization to
designate a Chief Compliance Officer (``CCO'').\25\ Proposed Rule
9.8(g)(5) would require each member organization's chief executive
officer (``CEO''), or equivalent, to certify annually that the member
organization has in place processes to: (1) Establish and maintain
policies and procedures reasonably designed to achieve compliance with
applicable Exchange rules and federal securities laws and regulations;
(2) modify such policies and procedures as business, regulatory, and
legislative changes and events dictate; and (3) test the effectiveness
of such policies and procedures on a periodic basis, the timing of
which is reasonably designed to ensure continuing compliance with
Exchange rules and federal securities laws and regulations.
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    \25\ The proposed rule change would revise Rule 3.6A(b) to add
Chief Compliance Officer as a new associated person status under
Chapter 9 of Exchange Rules.
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    Proposed Rule 9.8(g)(5) further would require the CEO to attest
that the CEO has conducted one or more meetings with the CCO in the
preceding 12 months to discuss the compliance processes in proposed
Rule 9.8(g)(5)(i), that the CEO has consulted with the CCO and other
officers to the extent necessary to attest to the statements in the
certification, and the compliance processes are evidenced in a report,
reviewed by the CEO, CCO, and such other officers as the member
organization deems necessary to make the certification, that is
provided to the member organization's board of directors and audit
committee (if such committee exists).\26\
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    \26\ Proposed Rule 9.8(g)(5) is modeled after NASD Rule 3013 and
NYSE Rule 342.30(e).
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    Under proposed Rule 9.8(b)(2), a member, upon a customer's written
instructions, may hold mail for a customer who will not be at his or
her usual address for no longer than two months if the customer is on
vacation or traveling, or three months if the customer is going abroad.
This provision helps ensure that members that hold mail for customers
who are away from their usual addresses, do so only pursuant to the
customer's written instructions and for a specified, relatively short
period of time.\27\
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    \27\ Proposed Rule 9.8(b)(2) is modeled after NASD Rule 3110(i).
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    Proposed Rule 9.8(b)(3) would require that, before a customer
options order is executed, the account name or designation must be
placed upon the memorandum for each transaction. In addition, only a
qualified ROP may approve any changes in account names or designations.
The ROP also must document the essential facts relied upon in approving
the changes and maintain the record in a central location. A member is
required to preserve any account designation change documentation for a
period of not less than three years, with the documentation preserved
for the first two years in an easily accessible place, as the term
``easily accessible place'' is used in SEC Rule 17a-4. The Exchange
believes the proposed rule would help to protect account name and
designation information from possible fraudulent activity.\28\
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    \28\ Proposed Rule 9.8(b)(3) is modeled after NASD Rule 3110(j).
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    Rule 9.10(d) allows member organizations to exercise time and price
discretion on orders for the purchase or sale of a definite number of
options contracts in a specified security. The Exchange proposes to
amend Rule 9.10(d) to limit the duration of this discretionary
authority to the day it is granted, absent written authorization to the
contrary. In addition, the proposed rule would require any exercise of
time and price discretion to be reflected on the customer order ticket.
The proposed one-day limitation would not apply to time and price
discretion exercised for orders effected with or for an institutional
account \29\ pursuant to valid Good-Till-Cancelled instructions issued
on a ``not held'' basis. The Exchange believes that investors will
receive greater protection by clarifying the time such discretionary
orders remain pending.\30\
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    \29\ ``Institutional account'' is defined in proposed Rule
9.10(d) as ``the account of: (i) a bank, savings and loan
association, insurance company, or registered investment company;
(ii) an investment adviser registered either with the Securities and
Exchange Commission under Section 203 of the Investment Advisers Act
of 1940 or with a state securities commission (or any agency or
office performing like functions); or (iii) any other entity
(whether a natural person, corporation, partnership, trust or
otherwise) with total assets of at least $50 million.''
    \30\ Proposed Rule 9.10(d) is modeled after NASD Rule
2510(d)(1).
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III. Summary of Comment Received and CBOE Response

    The Commission received one comment on the proposal which generally
supported the proposed rule change while raising issues with respect to
certain aspects of the proposed rule change. First, the commenter
requested that CBOE clarify how the proposed rule change would affect
compliance with CBOE Rule 9.21, which requires CROP approval for
options-related communications with the public.\31\ Second, the
commenter suggested that CBOE allow a Branch Office Manager with a
Series 8 or Series 9/10 license to approve discretionary options
accounts, instead of requiring approval by a Series 4 Registered
Options Principal.\32\ Third, the commenter urged NYSE, American Stock
Exchange and FINRA to adopt changes similar to those included in the
CBOE proposal and questioned the compatibility of the proposed changes
with other self-regulatory organizations' rules unless similar changes
are adopted.\33\
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    \31\ See SIFMA Letter.
    \32\ See id.
    \33\ See id.
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    In Amendment No. 1, CBOE responded to the issues raised by the
commenter.\34\ With respect to the first issue regarding CROP approval
under CBOE Rule 9.21, CBOE proposed to amend the rule to permit a ROP
designated by the member or member organization's written supervisory
procedures to perform such functions. With respect to the second issue
regarding discretionary options accounts, CBOE proposed to amend
proposed Rule 9.2.02 to clarify that the review of the acceptance of a
options discretionary account must be performed by a Series 4 qualified
ROP. However, members would be free to assign the function of accepting
options discretionary accounts to individuals who are Series 9/10
qualified ROPs. With respect to the third issue dealing with rules of
other self-regulatory organizations, CBOE stated that comments
concerning changes to rules administered by other self-regulatory
organizations were outside the scope of the proposed rule change.
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    \34\ The text of Amendment No. 1 is available at CBOE, the
Commission's Public Reference Room and http://www.cboe.org/legal.

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IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change, as amended, is consistent with the requirements of the Act and
the rules and regulations thereunder.\35\ In particular, the Commission
finds the

proposed rule change, as amended, would integrate the supervision and
compliance functions relating to member organizations' public customer
options activities into the overall supervisory structure of a member
organization, thereby eliminating any uncertainty over where
supervisory responsibility lies. In addition, the proposed rule change
would foster the strengthening of members' and member organizations'
internal controls and supervisory systems. As such, the Commission
finds the proposal to be consistent with and further the objectives of
section 6(b)(5) of the Act,\36\ in that it is designed to promote just
and equitable principles of trade, to prevent fraudulent and
manipulative acts and practices, and in general, to protect investors
and the public interest.
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    \35\ In approving this rule change, as amended, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
    \36\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds good cause for approving Amendment No. 1
to the proposed rule change prior to the 30th day after its publication
in the Federal Register. Amendment No. 1 clarifies the operation of the
proposed rule change in response to a comment. Amendment No. 1 does not
contain major modifications and these modifications would not
appreciably affect the protection to investors provided by the proposed
rule change as published in the Federal Register. The Commission finds
that it is in the public interest to approve the proposed rule change
as soon as possible to expedite its implementation. Accordingly, the
Commission believes good cause exists, consistent with sections 6(b)(5)
and 19(b) of the Act to approve Amendment No. 1 to the proposed rule
change on an accelerated basis.

V. Solicitation of Comments Concerning Amendment No. 1

    Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1, including whether Amendment No. 1
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-2007-106 on the subject line.

Paper Comments

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

    All submissions should refer to File Number SR-CBOE-2007-106. 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 such 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-2007-106 and should be
submitted on or before January 11, 2008.

VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\37\ that the proposed rule change (SR-CBOE-2007-106), as amended
by Amendment No. 1, be, and hereby is, approved on an accelerated
basis.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-24790 Filed 12-20-07; 8:45 am]

BILLING CODE 8011-01-P


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Prospective Ground Water Studies Background

Prospective Ground Water Studies Background

The goal of a field-scale ground water monitoring study is to evaluate the potential  of a pesticide and its degradates of concern to leach to ground water under a specific  set of conditions.

Ground-water studies are a major component of OPP's pollution prevention strategy,  since the results of these studies are used to mitigate the impact of a pesticide on  ground water.  Data from these monitoring studies are essential in drawing conclusions  about pesticide leaching potential throughout a proposed use area.

Risks that are considered before requiring a ground water study include the effects of  the pesticide's use on ground-water quality, human health via drinking water, and the  ecosystem.  When the use of a pesticide has the potential to exceed the risk levels --  the levels of concern -- considered acceptable, a ground-water study is generally  proposed.

Soils, hydrology, climate, agronomic practices, and chemical and biological processes  vary significantly throughout pesticide-use environments.  For this reason, generic  predictions of pesticide persistence and mobility derived from laboratory studies may not  be sufficient to characterize the effects of these processes under actual field  conditions.

Small-scale ground-water monitoring studies can be useful in determining the movement  of a pesticide in the field and in developing a more realistic exposure assessment.  The  results of a small-scale prospective study provide important evidence about the leaching  potential of a pesticide in real-world conditions.

The data from these studies are helpful in evaluating the current management strategy  (as stated on the product label) for a pesticide that has been shown to leach to ground  water.  Similarly, a small-scale prospective study can be used to test the viability of  measures proposed to mitigate the problem of a specific chemical leaching to ground  water.

In the field, many processes that cannot be simulated by the laboratory studies influence the fate of a pesticide.  These processes can result in either less degradation  or dissipation than would be predicted or in enhanced degradation or dissipation in the  field.  Ground-water studies are specifically designed to look at the influence of
real-world factors as they pertain to subsurface transport.  An advantage of the
field-scale ground-water study is that it takes into account the combined influence of  these real-world factors that determine if a pesticide will leach, be lost via runoff or  erosion, or degrade.

In determining the overall impact on water quality posed by use of a pesticide, it may  be possible to highlight uses for which impacts appear to be lower, and focus efforts on  specific uses or geographical areas where impacts may be higher.

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