Self-Regulatory Organization: Notice of Proposed Rule Change by Chicago Board Options Exchange, Incorporated Related to Tolling of the Time Period for Settlement of Disciplinary Cases Pursuant to Interpretation and Policy .01(d) Under Exchange Rule 17.8

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37496; File No. SR-CBOE-96-46]

Self-Regulatory Organization: Notice of Proposed Rule Change by

Chicago Board Options Exchange, Incorporated Related to Tolling of the

Time Period for Settlement of Disciplinary Cases Pursuant to

Interpretation and Policy .01(d) Under Exchange Rule 17.8

July 30, 1996.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on July

23, 1996,\1\ the Chicago Board Options Exchange, Incorporated (``CBOE''

or the ``Exchange'') filed with the Securities and Exchange Commission

(``Commission'') the proposed rule change as described in Items I, II

and III below, which Items have been prepared by the CBOE. The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested parties.

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\1\ The proposal was originally filed with the Commission on

July 10, 1996. The CBOE subsequently submitted Amendment No. 1 to

the filing. Amendment No. 1 was a minor technical amendment. See

Letter from Arthur B. Reinstein, Senior Attorney, CBOE, to Karl

Varner, Staff Attorney, Division of Market Regulation, SEC, dated

July 23, 1996.

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The CBOE proposes to amend Interpretation and Policy .01(d) under

CBOE Rule 17.8 (``Interpretation .01(d)''), to allow Exchange staff

thirty days to respond to a Respondent's document request before

tolling the Respondent's settlement period. The text of the proposed

rule change is available at the Office of the Secretary, CBOE 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, 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

The purpose of the proposed rule change is to amend Interpretation

.01(d) to allow the Exchange staff thirty days to respond to a

Respondent's document request before tolling the Respondent's

settlement period.

Pursuant to CBOE Rule 17.8, after a Respondent is served with a

statement of charges for an alleged rule violation, the Respondent has

120 days to attempt to resolve the charges by submitting a written

offer of settlement. Pursuant to CBOE Rule 17.4(c), within 60 days

after a statement of charges has been served, the Respondent may make a

written request for and obtain access to all documents concerning the

case that are in the investigative file of the Exchange except for

staff investigation and examination reports and materials prepared by

the staff in connection with such reports or in anticipation of a

disciplinary hearing or other privileged materials. If such a request

is made, Interpretation .01(d) provides that this 120-day time period

shall be tolled during the number of days in excess of seven calendar

days that it takes staff to provide access to documents in response to

a Respondent's request for such access.

The proposed rule change would revise Interpretation .01(d) to

provide that the 120 day time period shall be tolled during the number

of days in excess of thirty calendar days that it takes staff to

provide access to documents in response to a Respondent's request. CBOE

has found that in most cases staff needs longer than seven days to

respond to such a request. Before providing access, Exchange staff must

review and organize the file to remove privileged documents or

information that is not discoverable and to remove information that may

identify the complainant Consequently, the 120 day settlement period is

frequently tolled under Interpretation .01(d) while staff works on

responding to the access request.

Exchange staff believes that in some instances Respondents, or

their attorneys, have requested access just to gain an extension of the

settlement period through tolling. There have been occasions where

staff has spent more than 7 days preparing the investigative file for

access, but after gaining the benefit of tolling, the Respondent

submits an offer of settlement without ever reviewing the file.

CBOE believes it is important to provide a Respondent with access

to documents in accordance with Rule 17.4(c); however, CBOE wants to

discourage access requests made for the purpose of extending the 120

day settlement period. Therefore, the proposed rule change would amend

Interpretation .01(d) to toll the 120 day settlement period only if

Exchange staff takes more than 30 days to respond to a Respondent's

request. Exchange staff believes that 30 days is generally a realistic

estimate of the amount of time needed to respond to an access request.

Since in most cases staff will be able to respond within 30 days,

access requests should not typically extend the 120 day settlement

period.

Under the proposed rule change, a Respondent will still have a

sufficient amount of time to settle the matter after obtaining the

requested documents. Even if a Respondent waits until the last day the

rules allow to file a written

[[Page 40690]]

request for documents (60 days after a statement of charges has been

served) and staff takes thirty days to respond, the Respondent still

has thirty more days to submit a settlement offer within the 120 day

time period.

It is also proposed to amend Interpretation and Policy .01 under

Rule 17.8 to deal with the situation where a Respondent has elected to

proceed in an expedited manner pursuant to Rule 17.3 in an effort to

resolve a matter by entering into a letter of consent prior to the

issuance of charges. Interpretation and Policy .01(b) under Rule 17.8

provides that if an effort to reach agreement with Exchange staff upon

a letter of consent is unsuccessful and charges are issued, any time in

excess of 30 days spent in attempting to negotiate a letter of consent

is deducted from the 120-day settlement period, but that in any event a

Respondent will always have at least 14 days after service of charges

within which to submit an offer of settlement. Under the existing

provision of Interpretation .01(d), which tolls the settlement period

after seven days when a document request has been made, assuming a

Respondent makes a document request on the first day of the 14-day

settlement period, that Respondent always has at least seven days

remaining of the 14-day settlement period after the documents are

provided within which to submit an offer of settlement. In order to

continue to provide this minimum seven day period in light of the

proposal not to commence tolling the settlement period until 30 days

after a request for documents, Interpretation .01(d) is proposed to be

amended to provide that in no event will a Respondent have less than

seven days after the receipt of requested documents within which to

submit an offer of settlement.

This proposed amendment to Interpretation .01(d) will be invoked

only if, on the day a Respondent receives the requested documents, the

time left for settlement is seven days or less. In all other

circumstances, tolling of the settlement period begins once Exchange

staff has taken more than 30 days to respond to a Respondent's document

request.

The CBOE believes that the proposed rule change is consistent with

and furthers the objectives of Section 6(b)(7) of the Act in that it

improves the Exchange's procedures for the discipline of members and

persons associated with members. The proposal reduces the potential for

delay in concluding a disciplinary case by appropriately limiting a

Respondent's ability to toll the 120 day settlement period.

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.

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 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

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. Copies of all such filings will

also be available for inspection and copying at the principal office of

CBOE. All submissions should refer to File No. CBOE-96-46 and should be

submitted by August 26, 1996.

For the Commission by the Division of Market Regulation,

pursuant to the delegated authority, 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-19840 Filed 8-2-96; 8:45 am]

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